Corrections and Bear Markets -Game Plan

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By: ShortMeTina

The recent volatility in the Stock Market have many scratching their heads.  For the past two years or so; we’ve had the beauty of a market that only went up.  We did not have this chop that we’re experiencing now.  For folks that are relatively new to the stock market, do understand that these sorts of market moves are not as ‘uncommon’ as you may think.  Granted, we have not experienced them in a few years but for those (like myself) who’ve been in the Market since the early 2000s; this is somewhat familiar territory.  So, to the question that’s on everyone’s mind. 
How do you get through these types of markets?

CASH IS KING
About two weeks ago; I informed my members that I would be liquidating my portfolio.  I immediately got rid of stocks that showed me a loss or had me at break even.  Understanding that a continued market decline would put even more pressure on my portfolio laggards.  I also closed positions that were showing me moderate gains (anything below 25-30% was sold off).  This action alone would result in a 70-80% cash position or cash raise. Having cash is important for the next step. I should note that I kept stocks that were outperforming and stocks that I have intentions on holding for the longer term. 


(Observation: Since liquidating most of my positions, the stock market has experienced 2 extreme pullbacks; none having any material impact on my portfolio.)

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HOMEWORK
Preparation is what separates consistent winners from consistent losers (in anything.. PERIOD).  For me, that means doing some homework and preparing for my next steps. 

SHORTS
I searched the market for a handful or two of stocks that were completely overvalued.  If this market turns into more than a correction; stocks that enjoyed lofty valuations these past two years would surely come down to earth.  And if this correction turns into a bear market; I want to be ready to short these stocks.  (What is shorting?)

LONGS
(Retirement)
As it stands, we have tremendously good companies that are more than 10% -in some cases 20%- off their highs (eg: Microsoft ).  I have made a list of about 20 stocks that I really want to add to my retirement portfolio (with purchasing points).  As these stocks drift into my purchase zones; I will buy them.  Understanding that these are purchases for a longer-term outlook.  That means, if they dip below my purchasing point, I will continue to hold onto them. 
(Tip: Try to find a mix of good stocks that pay dividends). 
 
 
(Trading)
Similar to above, I have made a list of about 20 stocks that I want to occupy my trading portfolio.  These are charts that offer good technical pictures (despite the pullbacks); and are sure to provide sizeable returns when the stock market comes roaring back (Corrections present the best buying opportunities).

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PATIENCE
Being disciplined and having the resolve to know when to trade and when to sit on the sidelines.  These are extremely tough markets to trade.  To reiterate, I will remain disciplined in my approach and will attack only when the opportunity is in my favor.  This is a very uncommon edge and one I intend to exploit. 

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Good, Bad or Ugly... ..comment below. 

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