Don't Overreact to this latest Stock Market Crash

Video Transcript:

Welcome to all my fellow volatility traders. So I hope you're doing well so far and actually surviving this latest market correction. I just wanted to come on and give a little bit of a warning about a very common mistake traders make.

No fancy edits, I just want to get this out quickly, but a little tip from somebody who's been doing this for 20 years and has gone through several of these major volatility spikes. So unless you're living under a rock, you are well aware at this point that market volatility is going crazy the last few days. The VIX index was up as much as 180% at one point yesterday.

Absolutely wild. Now here's the updated chart for the largest VXX spikes in history. Yesterday was actually the largest VXX spike going back to the launch of VIX futures 20 years ago.

Literally one of the largest volatility events in the history of the stock market. It was stunning to watch. So if this is your first time managing your portfolio through one of these major spikes, let me tell you what we might expect going forward.

So after a major volatility event, it's actually pretty common to see the market start to recover a bit. Don't be surprised if the S&P 500 is up a few percent the next day or maybe the next couple days. Now no doubt a massive VIX spike like that is definitely going to catch people off guard and there's probably some traders out there that got hammered with some losses.

Okay, it happens to everybody at some point, but don't make it worse. When traders get caught in a bad position like that, they tend to scramble around trying to fix it. Switching positions, buying some hedges, taking some option trades in the moment.

Anything they can do to prepare for a bigger crash, because it feels like the end of the world. But then the next day the market may recover some of what it lost. It may start to look promising, right? Maybe the crash is over.

So now they scramble around and switch positions again. Getting back into stocks, taking off those hedges, closing out all the option trades. But then wouldn't you know it, the market starts to go down again.

Maybe the reason it crashed in the first place was actually a big deal. So now traders again scramble around and sell those stocks they just bought. They get back into the hedges and round and round they go.

I'm out of all my trades. Oh, now I'm back in again. Oh damn, now I have to get back out.

The basic lesson is don't open yourself up to that kind of whipsaw. Now obviously if your portfolio is in trouble, you're going to have to do something to repair it. But I would strongly warn people against trading too much this week.

We don't know anything yet. We don't know what spiked the market that badly. We can all take a guess, but it takes a while to get some clarity.

And we don't know whether this is going to last a while or if it's just a few days of panic. A portfolio can survive some whipsaw once and then you make some adjustments. But if you do it three or four times, every time you move positions around you're going to be bleeding a little bit of capital and it all adds up to a very disastrous trading week.

Remember there's nothing wrong with mostly sitting on your hands and waiting for confirmation of signals before acting. Sometimes the best trade is to not trade at all. So maybe it's a little insensitive at this point because there's going to be some traders out there who took some losses.

But if you want to see how our VTS portfolio actually moved to safety ahead of time, you can check out this video right here. Stay safe everyone.