When the market goes volatile, the usual trading strategies change according to Simon Baker, a hedge fund manager and CEO of Baker Ave. For example, buy and hold strategies are ineffective in a highly volatile market. Instead one needs to get in and out quickly to make money and minimize risk.
The question is how to gain perspective when sudden volatile market situations arise. How can one make buy or sell decisions when everything seems unpredictable?
Simon Baker has an indicator and some historic figures that guide his investment decisions. He uses the “blue buy indicator” which is goes off when 90% of the 4000 stocks that his company tracks fall under their 15 week moving average. This is an indicator that has only gone off 6 times in the last 25 years. When the blue buy indicator goes off, Baker knows that even though everyone is selling like mad, he must buy solid companies. The investors have oversold the market, including the solid companies. As soon as markets readjust, these solid companies will adjust upwards and money will be made.
Another historical market indicator is that in the last eleven recessions, the market has fallen 26% from the top of the market to the bottom. In this current crisis the market has only gone down 14%, indicating that the market will probably fall approximately another 12% before stabilizing.
Sorry, comments are closed for this post.