As the markets and exchange traded funds (ETFs) see-saw – up 300 points there, down 500 points there – you can’t blame investors for questioning what those good days really mean.
The Dow Jones Industrial Average closed last week with a huge two-day rally during which it gained 700 points. But investors rightly paused. Was the crisis over? Or was this just a dead cat bounce?
Monday, the Dow sank another 370 points. What today or tomorrow or next week will bring, nobody knows.
That’s exactly why you need a strategy and a plan.
Investors who are exposed heavily to risk and are choosing to ride out this storm might want to consider our plan. The strategy we follow if we’re in a fund is to exit either when it drops below its 200-day moving average or 8% off its recent high.
While you might lose some in this strategy, you will still manage to protect yourself on the downside and perhaps save a few dollars on Tums.
We cover our strategy in more detail in a trend-following plan story we wrote earlier this year.
This strategy is also covered at length in our book, iMoney: Profitable ETF Strategies for Every Investor.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.