The biggest temptation for traders this week will be trying to capitalize on the volatility in bank stocks…
All the bank stocks were battered yesterday after news of SVB Financial Group’s (NASDAQ: SIVB) collapse spread on Friday…
So is trading these stocks a good idea?
As traders, we like to take advantage of volatility. And the bank stocks are definitely volatile…
But we also have to focus on high-odds setups, weigh risk vs. reward, and stay disciplined enough to stick to our bread-and-butter setups.
There’s a balancing act between taking advantage of opportunities and knowing your limitations.
So here’s my take on trading bank stocks — take it or leave it…
Should You Dip-Buy Or Short Bank Stocks?
The term I use when sector news like the failure of a bank hits is, “newsy.”
It means the stocks and sector are too news dependent.
Now, news catalysts are generally something we look for when we trade penny stocks…
But when big news like a bank’s failure hits an entire sector it creates an environment where there are too many unknowns.
And positive or negative news announcements can create overreactions to the upside or downside.
One minute news reports that banks are failing…
Then five minutes later a politician or hedge fund manager says the banks are safe.
Maybe you dip buy regional bank stocks like Western Alliance Bancorporation (NYSE: WAL) and First Republic Bank (NYSE: FRC) because they’re “down too much” and you hear the government will save them.
Then minutes later a politician says, no we’re not jumping in to save them.
Or maybe you short the bank stocks thinking it’s all over for them and it’s going to be a repeat of 2008.
Then the news outlets announce a bailout package…
There’s just too much we don’t know.
The politicians and regulators will act like they know what they’re talking about. But nobody really knows until it plays out.
There’s no edge if you’re thinking about buying these and holding them overnight. Or if you want to short them thinking they’re going to $0.
Because we just don’t know how this will end.
The banking stocks are creating a ton of volatility. We like that … but we don’t just buy stocks that are low hoping to sell high. We use a system, good risk management, patterns, and discipline.
If you have $500 in your brokerage account and have no trading system yet, trading these stocks is like taking your money to the casino and betting it all on black.
Keep your money in your account and wait for a higher odds setup.
Stay focused on what you’re trying to build — consistency.
Penny stocks don’t follow the overall market. And there are still a ton of opportunities out there…
I had two nice winners yesterday from my weekly watchlist. So you don’t need to be distracted by the overall market noise.
If you want to know what stocks I’m watching and what I think about overall market news and themes — watch my Market Update videos three times a week!
You get a ton of bonuses when you join StocksToTrade Advisory — check it out here.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
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