Global Mayhem: How to Trade in a Fear-Based Market

Warren Buffet famously said, “Be fearful when others are greedy, and greedy when others are fearful.”

But how do you trade when you’re fearful?

First, never trade based on emotion. When others are trading emotionally, that’s the time to get disciplined.

This post will tell you exactly how to do that.

First, let’s deal with the elephant in the room…

Is This the Market Crash We’ve Been Waiting For?

The market was primed to panic in 2022 even before Russia invaded Ukraine.

Check out this post from the end of 2021. We got our top traders together to talk about a possible market crash in 2022…

Surprise — they said a lot of the same things:

• Be ready to size down and tighten your risk management.
• It’s OK to not trade! If you’re a newer trader, hone in on your criteria. Trade A+ bread-and-butter patterns only.
• Always remember to respond to the market, not react or anticipate.
• Test new strategies and tweak as needed.
• Journal everything! How else will you know what works? 

Healthy markets don’t just go up. The S&P 500 was at an all-time high at the end of 2021. The market showed all the signs of a coming correction.

The war in Ukraine has affected the market, for sure. But the market has mostly chopped sideways since Russia invaded on February 24.

Take a look at this chart of SPDR S&P 500 ETF Trust (NYSEARCA: SPY). It tracks the S&P, and it’s largely chopped sideways since late February.

The real damage happened in January. It was due to the problems we all knew about, like inflation and Fed interest rate hikes.

This hit the growth stocks that had been driving the market. All told, January 2022 was the S&P’s worst month since March 2020.

How to Read an Unpredictable Market

Some traders think they need to understand geopolitics to predict stock moves…

Even if you have a Ph.D. in political science, you probably still can’t do that!

That’s why we respond to what the market tells us. We never try to anticipate.

If you’re just looking at the high price of gas, you’ve likely missed the best moves in the sector.

The national per gallon average rose from $3.48 before the war to $4.33 at the time of this writing! That’s been a major piece of news…

It might be behind the 20% move that Exxon Mobil Corp (NYSE: XOM) made in the last month…

Or the 30% bounce in Chevron Corporation (NYSE: CVX) stock…

But how does it explain the Indonesia Energy Corp Ltd (NYSEAMERICAN: INDO) gain of 3,300% since the start of the year? This is a tiny company with 28 employees…

How about 49-employee Imperial Petroleum Inc (NASDAQ: IMPP) moving up 2,400% in less than a month?

These aren’t the companies that supply the world’s oil and gas. They are stocks fueled by speculation. And they’ve run way too fast.

The way you trade them isn’t by predicting how world events will unfold…

You trade them the way you trade any stock. Respond to what its chart is telling you. Look for solid volume and play smart patterns.

How to Trade Disciplined When Emotions Run High

The best traders I know surround themselves with a great community. That’s how they hold themselves accountable and stay grounded during market mayhem. And that’s what the SteadyTrade Team is all about — community, accountability, and growth.

The SteadyTrade Team is StocksToTrade’s complete resource for trading education.

Every trading day, I scan the market with our traders at the open. We look at setups and form trading plans.

We focus on high-probability plays. That means checking boxes on the following criteria:

• Is it a real company?
• Does it have unusual volume?
• What’s the catalyst — and the catalyst’s quality — driving the move?
• How much is the stock up, more than 10%?
• Is it a low float stock?
• Is it a former runner?
• How near is the stock to its 52-week highs?
• Does it have a clear line of support?

A trade doesn’t need to satisfy all of these conditions. But you should know them and check off as many as possible.

INDO and IMPP are sketchy stocks. That means I’ll advise more caution…

My number-one goal with the SteadyTrade Team is to help traders stay safe. That’s especially important in times like this.

What does that mean?

Don’t do anything different. Stick to your plan. Respond instead of reacting. And ride it out.

The Patterns to Look For

I have two favorite patterns for newer traders. They’re my favorites because they’re easy to read with clear criteria.

Most importantly for your trading plan, they give you clear risk.

The Dip and Rip

The dip and rip is a morning pattern. You wait till 9:45 a.m. Eastern or later on a stock that’s up in premarket.

The stock burns off some of its momentum from earlier in the day…

When it proves itself, you buy in. The entry is the reclaim of premarket high of day. You risk the low.

The VWAP-Hold, High-of-Day Break

No, this pattern doesn’t have a catchy name — but it’s my favorite for the afternoon.

You want a stock that hangs around all day…

It’s holding VWAP. It’s primed to run on the bigger volume that comes in around 2 p.m. Eastern.

This run may squeeze out the shorts, creating more momentum.

Trading Tip #1: You Must Stick to Your Stop

Once you get the setup you want, you need a solid plan.

Your plan is worth nothing if you don’t stick to it. A big part of that is sticking to your stop.

You need to trade safe … especially in a market like this.

Having tight risk means you might occasionally miss out on some plays.

It’s never fun getting stopped out. But it’s part of a smart strategy.

A SteadyTrade Team member recently traded Enservco Corp. (NYSEAMERICAN: ENSV). ENSV is another oil and gas penny stock that’s had an awesome run…

This trader got stopped out at $2.10 … And the next day, it gapped up to almost $9.

This trader still made the right move. Why? When these stocks fail, they usually don’t come back.

Trading Tip #2: Don’t Trust Any of These Stocks

Remember: only losers hold losers.

These stocks aren’t actually worth this much money. Even when INDO had real news in January, it soon fell back from its highs.

The reason these low float oil and gas stocks are running has nothing to do with these companies…

It has EVERYTHING to do with the traders who bought these stocks. The traders who are still in these stocks can’t be feeling great now.

INDO fell almost 70% off its highs by March 11…

IMPP and ENSV fell over 60%.

These stocks are filled with traders who bought in at the top. They didn’t have a stop set…

We call these traders bag holders. It’s a safe bet they’re waiting to unload their shares when the price perks back up.

Trading Tip #3: Beware the Chat Pump

Russian hackers are scary, especially if you’re tracking geopolitics.

But if you’re just trying to trade big gainers, you may have a greater concern — the chat pump.

There are big chat rooms out there…

The people in charge recommend stocks that they probably already own. They don’t teach their followers how to trade.

On March 7 and 8, IMPP and INDO were getting way too extended. Their share prices went from crazy to stupid…

Smart traders saw this and got out. The ‘chat sheep’ were there to buy shares at the market open.

It was like the last step of a pyramid scheme. The chat sheep killed the momentum and scared the dumb money away. They’re probably still holding onto their shares.

I don’t think the oil and gas run is over yet. But that doesn’t mean the stocks that have already run will keep running.

Remember: Nothing’s guaranteed in the market, especially when you’re trading sketchy stocks.

Still Need Help? Join the SteadyTrade Team!

There’s no shame in asking for help. For most traders, it’s the first step to improving.

And I think there’s no better place for that than the SteadyTrade Team.

Why? Our members support each other. We don’t feed each other FOMO. We understand that the only thing that matters to a trader is the process.

I’m there scanning the market with you every day. I answer any questions and help come up with trade plans.

Mike “Huddie” Hudson shares his tactics on strategy webinars. I do too. There’s material for every step of your trading journey.

Join the best trading chat room on the internet here!

How are you feeling about the state of the market? What trading criteria will you focus on? Let me know in the comments!