4 Steps to Surviving Market Corrections
Analyze the Current Market Conditions
The first step to surviving market corrections is to stay aware of the current environment and how well your strategy is working.
There are three main ways to do this
Track your recent performance and results. Stay aware of how your recent trades have performed. Note any changes in win rate or average gain.
Assess the health and breadth of market leadership. How are the market leaders performing? Are they trending? Breaking out of early stage bases and following through? Or are they forming loose late stage bases or breaking moving averages
Analyze the trend and price action of Market Indexes. What is the prevailing trend? Are we above or below the 21ema and is it increasing or declining. What is the volatility like? Are we seeing increased distribution?
Protect Your Mental & Financial Capital
Less is more in choppy and volatile environments. Before thinking of profiting from shorts ensure that you protect your hard won profits from the previous uptrend.
This not only preserves your financial capital but also ensures that your mind is clear and objective and you are not letting down-trending positions effect your judgement. Protecting your mental capital allows you to be ready and fresh when the next opportunity starts.
Adjust Your Process
After you've protected your capital, depending on your skills, experience, and goals you have some choices to make.
You can either take a step back from the markets and focus on other interests and opportunities or you can change your trading style.
During a correction you can look for short opportunities or shorten your timeframe. Make sure you do the math to check if these types of trades are worth it for you. You may find it is not worth the mental capital to become a day trader for a few weeks out of the year.
Prepare for the Next Uptrend
Regardless of your choices, stay vigilant and ready for signs that the next uptrend is about to begin. Stay up to date on your routines and keep a list of developing leaders.
Remember, corrections create the best opportunities. The most important thing is to be in the right state both financially and mentally to take advantage of them.
Thanks