Can you make money in a falling market?
And if so, how?
That's what we're going to talk about in today's Coffee with Markus.
Welcome to Coffee with Markus!
Yesterday, the markets dropped like a rock!
I'm recording this on February 6th.
And yesterday, the Dow plunged more than a 1000 points.
1167 points to be exact.
Can you make money in such a market environment?
That's what we're gonna talk about today.
First of all, this weekend we had our 3 day live trading summit in Phoenix.
And it was amazing. We had a great time.
The way how we are doing our live trading summits is -
We are teaching, or I'm teaching, everything that you need to know about trading.
On Saturday, on Sunday, and then on Monday -
We are trading "live".
So let's take a look at the markets here really quick.
And then also I want to show you what we did on that day when the markets dropped like a rock.
So I want to go here to the chart of the Dow Jones Industrial
And as you can see, today we're bouncing a little bit back.
Yes, today we are actually up more than 2%. Almost 600 points here in the market.
So you see the Dow has been going up for a long long time, and now it's started crashing.
In fact, the SMP 500 now turned negative for the year as I'm recording this.
Again today, we see a slight bounce back.
And that's probably due to the plunge protection team.....
(Sorry, technical problem)
It's not easy to operate this camera here.
Anyhow, so what did we do yesterday?
I want to talk about the three ways......
I want to talk about the three ways how you can take advantage of a market that is falling.
First of all, every time the market is falling, there will be still individual stocks that are going up.
We'll take a look at one of those in just a moment.
But another way how you can take advantage of a market that is falling is by selling short.
This means that you're selling stocks and you are then buying them back later.
So that is one way to do this.
And this actually what we did yesterday.
So while the markets were falling during our live trading -
we were selling MYGN and TECK.
These were stocks that we identified with the PowerX Analyzer.
And as you can see here on the left -
this is where it shows that we made money.
So when we're doing these live trading events we're trading a $10,000 account.
Actually there's a little bit more in this account but we are pretending it's a $10,000 account.
So this is why we entered these two positions and you see overall yesterday -
our profit was $498 for the day.
So that's a what almost 5% based on a $10,000 account.
So selling short is one way to do this.
Now if you have a retirement account, or depending on your broker -
If you do not have a margin account you might not be able to sell short.
So what do you do then?
Well the easiest way to do then is trading options.
And when you're betting on a falling market, what you're looking for is buying puts.
And that's another strategy that we pursued yesterday.
So we did buy puts.
So there's two puts.
One of them we already entered last week, and the other one we did enter yesterday.
It is the put for TECK.
You see it is the March 16th 2018 29 puts.
And you see we only traded one option.
And this was up nice $58 yesterday as the market plummeted -
we were making money.
So what is another way that you can take advantage of a falling market?
You see the Dow Jones and they are so-called inverse ETF's.
What does this mean?
it means that they are reversed......
So this means that they are inverse.
Meaning if the overall market is going up, these inverse ETFs are going down.
And on the other hand, if the market is going down, they are going up.
So one of these ETFs that you could buy to bet on a falling market is SDOW.
So this is the Dow Jones.
And as you can see, it was going up, and then we had the drop down, and today we have a bounce back.
So the quote that you want to look for is SDOW.
This is an ETF that you can buy. And as you can see, while DOW was going up, this was going down.
And now in the past few days, as the Dow was plummeting, it was going up.
Today as the Dow Jones bounces back, it goes down.
So it mirrors it in the exact opposite way.
So this is how you can also play a falling market.
Now let me tell you the way how you do not want to play it.
You do not want to just say, "Oh it will be just fine, I'll just wait"
You have heard me saying it now since October 2017, "the crash is coming".
We will see a correction in the market.
And believe me, the correction in the market will be at least 20%.
I personally think it might be closer to 30 or even 40%.
Now if you look back in history, you'll see that every four to five years, we have such a market correction.
Now when this is coming, it might take years for it to recover.
Think back of 2002, the crash in 2002, or the crash in 2008.
It took years to recover.
And for me the worst the worst approach that you could take is say -
"Oh that's just a normal correction. Let's just wait until it comes back."
It takes way too long.
There is a possibility to make money in a market that is going down.
And this is why I believe everybody should learn how to actively trade.
Because when you do this, as you have seen -
while the market was crashing yesterday, on a $10,000 account - we were up 5%.
Now again, this is unrealized profits.
We haven't taken any profits because we like to hold the positions for five to twenty days.
But that is the difference between investing and trading.
As traders we're taking advantage of short trends in the market.
And it doesn't matter whether these trends in the market are to the upside or the downside.
When they are lasting for a few days, that's exactly what we are looking for.
And that's when you can trade stocks, when you can trade options, or you can even trade inverse ETFs.
All of this is possible.
The wonderful thing about trading is you're no longer at the mercy of the markets.
You don't care what the overall markets are doing.
You don't care whether it's going up down or sideways.
As long as it is moving, as traders, we're happy.
As traders we love volatility.
As an investor, you hate volatility.
One of the tools that we use to analyze which are the best stocks and options to trade is our PowerX Analyzer.
Because I - get this question all the time.
"How do you know what stocks to trade, or what options to trade, and how do you know when to trade them?"
And this is where we have our PowerX Strategy.
And we can go back to the charts and I can show it to you really quick, if you're interested.
What we do with our PowerX Strategy, we look at three indicators.
Here are the three indicators.
We're looking at the RSI.
We're looking at the slow Stochastics.
And we are looking at the MACD.
As long as the RSI is above 50, and the Stochastics is above 50, and the are the MACD is above its signal line -
this means that we have bullish market conditions.
If the RSI is below 50, and the Stochastics is below 50, and the MACD is below its signal line -
we have bearish market conditions.
So let's take a look at the Dow Jones right now.
Even though we see a bounce-back today, we still have bearish market conditions based on the indicators.
And this is where really I don't care what the talking heads on TV are saying.
Whether they're saying, "oh my gosh we're bouncing back"
Right now I see that we still have bearish market conditions.
The RSI is at 33, so it is below 50.
You'll also see that the Stochastics D, the slow Stochastics, is below 50 right now - it's at 28.
This is indicating bearish.
And you see that the MACD, which is the purple line, is below the orange line.
So all three indicators are telling us we're still in bearish market conditions -
even though today we saw a quick bounce back.
Let's take a look at the e-mini S&P here.
And we see exactly the same thing. Still bearish market conditions.
And yesterday when we had this massive plunge, the S&P turned negative for the year.
So this means that all of the gains that we had this year, in January -
were wiped out in just a matter of few days.
And this is why I love to play the market to the short side when it is falling.
Because a market is typically falling twice as fast as it goes up.
Look at this! Take a look at the chart again.
You see we're going up up up up.
You see how we are grinding up and then boom! We're crashing down.
And it doesn't matter whether you're looking here at the S&P, the Dow.
Or yes, absolutely I know, cryptocurrencies we're talking about this all the time.
Let's take a look at the year-long chart of the cryptocurrencies and you see -
how it took them a while to grind up higher, higher, higher.
Here we're looking at Bitcoin and then boom! It's crashing really quickly.
And that's why I like to trade the markets both ways.
So now you know how you can take advantage of a market that is falling.
It doesn't matter.
For a trader like us, it doesn't matter whether the market is going up or down.
As long as it is moving, we can take advantage of this.
So, this is what I wanted to tell you today.
Don't be afraid of market plunges.
If they happen, there are ways to take advantage of it.
And I want you to know about these, and I want you to learn about these, and then I want that you to use it.
So that you can make money no matter what the overall market does.
Hope that helps.
And thanks again to everybody who joined us this weekend at our Rockwell Live Bootcamp.
It was amazing, we're so excited.
I love talking to traders. We had a fantastic time.
And I hope that you can join us in one of the upcoming Bootcamps, or the Rockwell Trading Live sessions -
that we do all over the country.
The next one is happening in Orlando in just a few weeks!
We will be in Orlando. I'm very excited about this.
I will post a link to this right underneath the video.
So if you're interested, check it out. Come and see us.
And looking forward to teaching you more on how to trade the markets.
Take care.