Assume Volatility
The volatility spike started last week Friday afternoon when it became clear that tariffs were going to be levied on Canada, Mexico and China. It got worse over the weekend. This morning it is still bad but not as bad as the weekend.
While we may get stressed about tariffs and what that may do to the stock markets, stress is not going to solve it. This is something mostly out of traders and investors hands and all we can do is react to the situation and what is happening.
More than the actual tariffs themselves, market participants do not like uncertainty. They want to know what the final decision is and until when will tariffs be levied and by how much and all other details. Then decisions can be made, and actions can be taken.
The volatility we are seeing and will likely continue to see for a while is due to the uncertainty more than the actual actions of the administration. Once the market knows what to expect, things will be more stable.
Stability does not mean stock prices will start going up. Stability means it will be easier to price the stock market and settle on some levels. That will ensure the volatility comes down. That is stability.
It is unnecessary and futile to spend time and energy on whether tariffs are good or bad and whether they are right or wrong. That is very much out of our control (certainly out of my control) and our opinion does not matter.
We, as traders and investors, have to focus on what is important to us and manage what is within our control. From my perspective, I am keeping it simple. In my long-term investment accounts, I am not doing anything. In my trading account, I am always using only about 50% of my capital. So, that is the capital at risk as of now. I keep 25% of my capital as opportunity capital to be deployed when there is maximum fear in the markets.
We are clearly not yet at maximum fear, and we may not get there during this tariff drama. That is fine. Meanwhile I am going to assume volatility and play according to that.
I did all my trending analysis over the weekend but find it unproductive ad also somewhat irrelevant to go over that at this time. We know things will change in the next few days not based on trending but on external matters. So, I will come back with a mid-week note going over the trending.
Meanwhile, I will be writing short notes on the x platform. I can be found at Alternate Trader.
Wish you the best in this likely volatile week.