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Last week, we saw the stock market decline for every day of the week, crashing about 15% from all-time highs, making it the sharpest decline in history.
This huge spike in volatility was excellent for short-term traders, and might also be an opportunity for bargain hunters looking to buy stocks cheaper.
I also made a short video talking about the different approaches to tackle the market crash:
Table of Contents
The Start of the Decline
The first 2-3 days of decline was sparked after fears of a worldwide contagion of the Covid-19 virus, which saw a gap down on the S&P 500.
I started to post warnings about not trying to pick the bottom or to start buying, because I knew that a larger move was likely to come.
How Far Can this Crash Continue?
As the crash continued, I consulted my charts to plot a possible long-term roadmap, which would see a continued decline to about 15-20%, followed by a rebound and period of consolidation.
If there is a strong second wave of selling, we could see a larger sell-off to the bottom of the trendline, or the 200-moving average of the weekly chart.
At the same time, we also started initiating short positions on Crude Oil and AUD/JPY.
How to Catch a Falling Knife (Successfully)
On Friday, I predicted that there would be a rebound towards the closing, since there was no meaningful pullback after 6 consecutive days of selling, and also traders would likely close their short positions going into the weekend.
So I started accumulating long positions as the market tested new lows, and true enough, there wasn’t much further decline and even had a bullish surge into the closing minutes.
I took the chance to liquidate some of my positions to lock in my profits for the weekend.
Overview of Trading Results for Friday
Overall, it was a once-in-a-lifetime exciting chance to trade such volatility, and also a great learning experience for my students as we got to observe and discuss it together in real-time.
My trading portfolio booked a net 39.52% gain, with most of the profits coming from just 3 positions:
- Short on AUD/JPY
- Short on Crude Oil
- Catching the bottom of S&P 500
Going forward, next week is going to be an excellent week for bargain hunting, and I have already posted my target portfolio allocation for my students so that we can be on the lookout for buying opportunnities.
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Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.