Sunday, September 25, 2011

A Z-Trader's Thoughts on Recent "Vol" 9/25/11

Excerpt from one of our contributor's articles at SeekingAlpha:

Here are a few quick thoughts for these volatile conditions, during these difficult economic times:
  • Don’t try and catch a falling knife. Most good trading systems will minimize risk and “stop losses” from accumulating. You can never tell how far emotions will carry a large market move.
  • When “contagion” spreads, it is sometimes best to step aside and reduce positions because psychology and emotions can also spread – causing markets to move past any "reasonable" level.
  • Many portfolio managers are reducing positions, so markets become more "correlated" to one another.
  • “Diversification helps until it no longer helps.”
  • Trade down to the level that lets you "sleep at night."
  • From a trader's perspective, once the markets find footing, these "dislocations" may offer opportunities.

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