Trading is risky, and most day traders lose money. Ross's results are not typical. All information provided is for educational purposes and is not investment advice or buy/sell recommendations. Read our full disclaimer.

Warrior Trading Blog

Navigating Panic in the Market

Hey everyone, Ross Cameron here! Today, I’m trading on my traveling trading station, which I use whenever I travel – it’s one of the perks of being a day trader. However, I didn’t expect to walk into the current market panic this Monday morning. The Japanese Market dropped 12%, and the S&P 500 experienced a massive selloff. Let’s talk about what’s happening and how to navigate this chaotic market landscape.

Initial Market Conditions: A Monday Morning Surprise

The Japanese Market plunged 12%, and the S&P 500 saw a huge selloff. The selloff began on Thursday, continued on Friday, and took a steep drop on Monday morning. Such sharp drops usually spark fear among traders, causing them to reassess their strategies. Opening around the lows, we did see a bit of a bounce back, which was a glimmer of hope. But the overall sentiment was one of panic.

The Market’s Strength Prior to the Selloff

Before this drop, the market was incredibly strong. The Federal Reserve’s sudden and aggressive interest rate hikes, in response to supposed temporary inflation, tested the financial system. They raised rates to the highest levels in 20-25 years, affecting companies dependent on borrowed money. This triggered record-high bankruptcy filings in 2023, as many companies struggled to manage their debt with the elevated cost of borrowing.

Bear Market and Recovery: The Rollercoaster Ride

In 2022, we entered a full bear market, technically a recession, although the government redefined it to avoid the label. Then, incredibly, the market rallied. The S&P 500 soared nearly 80% off its lows, led by big tech companies like Nvidia. High-interest rates didn’t deter investors who were eyeing treasuries for guaranteed returns; they still saw potential in stocks if the returns were substantial.

Consumer Sentiment and Federal Reserve Challenges

Consumer sentiment and spending remained strong, along with the job market, creating a headache for the Federal Reserve. Originally planned interest rate reductions were delayed because of the market’s strength. Lowering interest rates would likely boost spending and potentially reignite inflation. The housing market, already struggling due to a decade of low new construction from 2010 to 2020, also faced the pressures of high material and labor costs and high interest rates.

Current Concerns and Federal Reserve’s Response Tools

Unemployment recently hit 4.3%, crossing the Federal Reserve’s 4% target, adding another layer to the discussion. People often interpret this as the Fed needing higher unemployment to justify reducing rates. This current high-interest scenario is a consequence of their slow response to pandemic-induced inflation. Now, they’re slow to lower rates, which risks pushing the economy further into trouble.

Investors worry about a recession, but the Fed has tools like emergency rate cuts to stimulate the economy if needed. Historically, reducing interest rates has been the go-to strategy during recessions because it encourages borrowing and spending. The Fed didn’t have this option during the 2022 downturn since interest rates were rising, not falling, to combat inflation.

Historical Lessons and Monetary Policy

Looking back, the Federal Reserve’s policies have often shaped economic crises. For example, the de-industrialization of America in the 1980s followed their monetary changes, leading to a shift of manufacturing overseas. Likewise, their policies magnified the Great Depression by implementing tax hikes during a recession. The lesson? Monetary policy must balance carefully to manage economic cycles without causing prolonged damage.

Long-Term Investment and Risk Management

The S&P 500’s volatility highlights why long-term investment strategies are advisable. Trying to time the market leads to underperformance, and over-leveraging can make drawdowns unbearable. A balanced approach helps manage the psychological stress of market fluctuations.

A Day Trader’s Strategy: Trading in a Volatile Market

Today, despite the market turmoil, I managed a successful trade. Using my experience, I navigated through stocks like MGOL and SNTI, making cautious but profitable trades (Results not typical). The key is not to overstay your welcome and manage risk diligently. When panic sets in, it’s often wise to look for buying opportunities, as Warren Buffett famously advises – buy when others are fearful.

Conclusion

Day trading demands continuous learning, strategy adaptation, and rigorous risk management. If you’re interested in diving deeper, consider committing time daily to improve your financial literacy. Whether it’s through structured courses or personal study, start now.

Remember, trading is risky, and my results aren’t typical. Always practice in a simulator before putting real money on the line. Manage your risk, be patient, and stay informed. Happy trading!

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Disclaimer: The results shared are based on my personal trading experiences and are not typical. Trading involves significant risk, and past performance is not indicative of future results. Always practice in a simulator before trading with real money.