3 Steps to Combat Fear of Market Failure

[TradeSmith Daily]( Editor’s Note: During periods of market turbulence, fear can lead far too many investors to make costly slip-ups. But one trick for conquering that fear is recognizing that with great volatility comes great opportunity — as long as you take the right approach. If you are interested in learning about a strategy that thrives in times of volatility, I encourage you to watch TradeSmith Senior Analyst Mike Burnick’s presentation on the subject [here](. 3 Steps to Combat Fear of Market Failure Markets don’t make investing easy. Sure, things were simple decades ago when you could rely on the buy-and-hold approach. But those days are long gone. Day after day of 700-point flops and pops in the Dow try our patience. Sensational headlines and talking heads only add to the fear and alarm. I can’t tell you how many people let their guard down and succumb to panic. We saw it happen during the Great Recession and the following decade, when far too many folks were underinvested in the market. You can’t sit back and let your stocks take a beating. But that doesn’t mean you need to liquidate and purge your portfolio, either. Every one of us can combat the fear of market failure — that anxiety that nags at us day and night hinting, at the worst possible outcomes. I’ve got three easy steps you can take to keep your emotions in check and not only survive but thrive in market volatility. Each step builds on the last. So make sure you read through all of them to get the entire picture. RECOMMENDED LINK [This Market Event Only Happens 2-3 Times a Century]( It’s occurring right now here in America and failing to recognize it could keep you from making some of the biggest stock profits of your life. [Click Here]( 1. Recognize Fear and Why It Happens At a young age, we all learn about our fight-or-flight instincts. It’s embedded in us just as it is in most living creatures. Despite our higher-functioning thinking, we can’t escape these instincts. In trading and investing, they predispose us to avoid pain more than seek gratification. Consequently, we tend to sell as fear climbs and buy when excitement hits its peak. That’s the exact opposite of what we should be doing. The thing is, we all feel fear and excitement. You can’t will them away any more than you can avoid smiling at a funny joke. Instead of trying to fight them, go for a more proactive approach. Accept that you will feel these emotions. Rather than fight them, acknowledge that they will happen and plan for them. 2. Create an Airtight Investment Plan That brings me to the second step: creating an airtight investment plan. This isn’t how you can turn your $100,000 account into $1 million over a decade, or what you should save for retirement. I’m talking about developing a decision-making framework for when markets fall apart. We already know that when stocks go into a tailspin, emotions run hot. Your blood starts pumping while the anxiety begins to steadily rise. This isn’t when you want to start thinking about what to do. This is when you need to know what to do. An airtight investment plan prepares various scenarios and decisions ahead of time so you don’t have to think when the moment arrives; you just act. [In a previous article]( I laid out an example of what this might look like. Here’s the key to making it work: Engage with your portfolio enough to adjust to changing market conditions but not so much that you risk overtrading. For most of us, we want to have three to five actions to take every week in our portfolios. This serves two purposes. First, it helps calm the nerves and puts us back in control of our futures, rather than riding the market like a rodeo bull. Second, it keeps us connected to the market. People who throw in the towel miss the rebounds that occur after a decline. On the other hand, someone who tries to manage every stock they own tick by tick overthinks and then overtrades. Both approaches leave you worn out and poorer for the experience. Three to five actions per week create a nice balance where you can adapt to market changes without staring at charts all day long. So, how do we decide what those three to five actions should be? RECOMMENDED LINK [Today he earns up to $20,000 a week*]( We checked in with Rob after he sent this mind-melting review. Here’s a snippet from the email he sent: “Keith Kaplan… I send my accolades out to you. I've been trading for 8 weeks. I'm up $20,000 per week — that's $160,000 total. I think this service is phenomenal.” While results like Rob’s aren’t “normal” by any stretch… after reading that email, I HAD to follow up with him. So he agreed to hop on a phone call… It was an eye-opening 45-minute conversation where Rob told me: “As of Friday last week, I am up $284,000.” I knew my readers had to hear about this… [So I included more of Rob’s story — including a VIDEO “demo” of the same type of trade on this website (click here)](. * The investment results described in this testimonial are not typical. Investing in securities carries a high degree of risk; you may lose some or all of the investment. 3. Take Measured Risks When markets swoon, opportunities arise. However, you want to avoid flopping around from one trending stock to the next in the hopes of scoring your next 10-bagger. You can use simple strategies that take advantage of the increased market volatility. In fact, it’s a great time to become an options seller. I talked about this in a [recent newsletter]( where I discussed using cash-secured puts to pick up those forever stocks you want to own. Selling cash-secured puts during market routs on quality names like Apple (AAPL) and PepsiCo (PEP) pays you higher option premiums (the price of an option) than you would receive during calmer markets. Here’s how you might bring this all together. Let’s say I already own Apple and PepsiCo stock and would like to add to those positions if the stock drops far enough. We know that implied volatility is elevated, driving up option premiums. Taking a page out of TradeSmith Senior Analyst Mike Burnick’s book, I can create a plan that takes advantage of both market volatility and options. I’ll use Pepsi as our example. - I’ll create a trading range based on the last three years for the stock and divide it by two. Pepsi hit a low of $95.94 on May 9, 2018, and a high of $177.24 on Jan. 21, 2022. The midpoint is $136.59. TradeSmith Finance - When the stock is in the upper end of the top half of the range, I sell a covered call option against the shares I currently own to collect a premium that is elevated due to high implied volatility. - As the stock drops below the halfway point, I can close out my covered call and take my profit early if I choose. - When the stock nears the lower end of the bottom half of the range, I sell a cash-secured put and again collect a premium that is elevated due to high implied volatility. During this entire period, I continue to collect my dividend payments on top of the option premiums I sell. This strategy works great because with a decent-sized portfolio, I’m looking at three to five actions per week, whether they be opening or closing covered call positions or opening or closing cash-secured put positions. I want to highlight that although this isn’t an aggressive strategy, it uses implied volatility and price swings in stocks to generate income. And if we get a market that bounces sideways, it’s a blueprint for some serious cash flow. So, what other strategies do you like to use when markets are exceptionally volatile? How do you keep your emotions in check and manage risk without panicking? [Email me and let me know](mailto:keith@tradesmithdaily.com). While I can’t respond to each letter, I promise to read every one. Enjoy your Wednesday, [Keith Kaplan]Keith Kaplan CEO, TradeSmith P.S. The most effective way to avoid fear-driven mistakes in the market is to follow a system… TradeSmith’s algorithms predicted the “coronavirus crash” of 2020, but what they’re signaling now for folks nearing retirement is utterly frightening. About $7.6 trillion could disappear from the S&P 500, putting your retirement savings at risk — unless you know about this hidden volatility signal that can tell you the exact day to exit with your wealth intact. Avoid the chaos — [click here for complete details while there’s still time](. P.P.S. Learn more about what the Pure Quant tool can do for you in Thursday’s webinar. To build on last week’s webinar, join TradeSmith Product Education Lead Marina Stroud for a live presentation on “Another Way to Use the Pure Quant Tool.” Many of you know that the Pure Quant tool can help you build a new investment portfolio. Did you know that the Pure Quant tool can also rebalance and add new replacement holdings to your portfolios? Together, we will review this step-by-step process, discuss the Pure Quant rules, and examine equal risk position sizing. This lesson applies to members who hold a TradeStops (Pro and Lifetime), Trade360 (Pro and Lifetime), Crypto by TradeSmith (Premium and Lifetime), and/or TradeSmith Platinum membership. [Click here to register]( for the webinar on Thursday, March 17. Webinars begin at 1 p.m. Eastern and include time at the end for a question-and-answer session. 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