Bear with me !!

Generally as a rule we all want the stock market to go up, it feels right , it means things are all well with the world at large.However any of you who have been investing for more than a few years will know that sadly markets do not always go up.So what to do when they start to go down or start behaving in a very volatile fashion like they have been doing lately, I guess there are three things you could do:

 

1 If you are a long term investor-hold off and wait for the inevitable good times to come back-I find this hard to do sitting through drawdowns watching your capital disappear drop by drop

2 Move to cash, certainly this makes it easier to sleep at night but unless your timing is immaculate it can mean that you miss out on a lot of money making opportunities

3 Use some form of investments that allow you to make money as stocks go down.

 

I have spoken before about my use of options, however options are not for everyone and in certain accounts(like my ISA in the UK) you cannot use options.Lately there has been a growth in a number of what are being labelled Contra ETF's-basically ETF's that go up when the market declines-they can be on indices such as the Dow, S&P 500 or the Russell or they can also be on certain commodities such as Oil.

I personally like to use Proshares ETF's go here for a list of the short ones that they offer   http://www.proshares.com/funds?products=98616&fundType=   .They offer a vast range but I tend to favour the more liquid ones such as DOG (Short Dow) or DXD (Ultra Short Dow-twice the index).I also use the PSQ and the QID which are the short and the ultra short on the QQQQ index. These are a great way of either hedging some of your longer term positions or trading to take advantage of some of the volatile swings that we have seen of late. I use them for both purposes.

The advantages of being  able to trade the market long and short as well as being able to hedge are immense and can make a real difference to your returns over the short and long term. I urge you to check out the opportunities that are available with using these types of fund.

 

Over the next few weeks I will share with you some of the ETF's that I will be purchasing and using to try to rid out the volatility in the market that we are currently experiencing.

 

All for now

 

Good Trading

 

Alan

How to protect your profits and Portfolio in a downturn.

Well the last week has been interesting.....If you have been following this blog then you will know over the last month or so I have been becoming increasingly nervous about a downturn and we have seen some of the markets teeth in the last week or so.

I dont think it is over and I believe we have more downside to come-increasingly people's appetite for risk is diminishing and we are seeing the Yen Carry trade possibly starting to unwind as people get nervous and start to liquidate their Yen positions.If this happens then it will have ramifications across the globe.

One of the more challenging things to be able to do in a downtrend is trade it-either as a speculator looking for profit or to hedge your longer term holdings.This can be more difficult in certain types of accounts as there may be restrictions in selling short or using options.

If you are in this situation then I urge you to look at some of the Pro Shares at

www.proshares.com

They have a number of Short Proshares which you buy like a stock but they move in the opposite direction i.e. as the index they are related to goes down the Proshare price increases.It allows you to profit from a down market or use them as a hedge to protect your existing positions.

Two of the Proshares I like are the Short Dow 30 (DOG) and the Short S&P 500 (SH), you can also get Ultra Short funds which are double the downside .In this market I urge you all to look at doing one or both of the follwing :

1/ Take Profits off the table and lighten up your exposure

2/ Hedge what is left in your portfolio to reduce your downside

If you cannot or dont want to do either of these then consider going in to cash until the dust settles.

As ever good trading

Alan

Tags: Shorting, Pro Shares, DOG, SH, UltraShort, Hedge

Powered by Qumana