IS NOW THE RIGHT TIME TO BUY STOCKS?
After a volatile trading week, stock markets teeter on the edge of potentially something bigger. Many Analysts are saying that last week's sell-off could be the start of a major correction given how fast and furious stocks have moved up since the March lows. However, with many stocks now trading 10-20% from their highs, now could be an excellent time to snap up shares of some of the worlds greatest companies.
SO WHAT IS HAPPENING WITH THE MARKET RIGHT NOW?
The market is experiencing a sharp correction after a 6-month run in which indexes such as the S&P500 have risen 50% with many stocks doubling their share prices in this time. In fact, companies such as Tesla, Shopify & Nvidia have all at least tripled in value! As you can see below, since the March lows there have been 3 significant pullbacks of 6%, 7% & 8% so the most recent correction of 5% looks completely normal so far.
SHOULD I HAVE SOLD EVERYTHING BEFORE THE CORRECTION?
Ideally yes, but only if you knew for sure that this correction was imminent and that's almost impossible. Trying to time the market in order to side step every negative fluctuation is extremely difficult and rarely works. Most traders who attempt to do this end up getting the timing wrong and miss out on large gains as they're left behind whilst markets take off again (all whilst incurring extra fees for their hyperactivity).
SO I SHOULDN'T HAVE SOLD BEFORE THE CORRECTION?
Although you shouldn't have closed all of your positions, it certainly would have been wise to have trimmed them. It's important to take some profits off the table after such a huge run because remember;
"Bears make money, bulls make money but pigs get slaughtered".
Therefore it's important to remain sensible and avoid becoming greedy as stocks reach valuations where they no longer offer a good risk vs reward ratio. It may be hard to watch stocks move higher as you sit with cash on the sidelines but it's 100x better than watching that cash drop like a hot potato!
WHAT AM I DOING?
After taking some profits over the past couple of weeks, my cash position briefly exceeded 40% before the recent pullback. It had been hard watching certain stocks continue to rise but it's important to partially protect yourself from incidents such as those we experienced last week.
After assessing the damage caused by the broad market sell-off, I've reallocated most of the sidelined cash into the stocks hardest hit by the downturn and ones that I believe are approaching their own bottom. I'll hold off from increasing my position in others that I believe could suffer further this week.
Despite fearing another leg lower during this correction, I see little value in attempting to avoid it. It's easier and more effective to simply ride the waves and where possible take advantage of select opportunities during this correction. You can check out which stocks I recently added to my growth portfolio by clicking HERE!
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