Editor’s Note: Regular readers know that Bill typically looks at big trends shaping the market and our economy. But colleague Jeff Clark is very different. He’s a stock trader with over three decades of experience, and typically looks for short-term profit opportunities.

His insights may not be our usual fare at the Diary, but with stocks seesawing, we invited him to share how he uses today’s volatility to his advantage.

All traders struggle when the market goes nuts.

“Nuts” isn’t a technical term. You won’t find it in any stock market glossary. But you know what it means.

It describes an environment in which stocks go through large swings – both higher and lower – in no consistent or predictable pattern.

There’s really no better way to describe the current market environment than by calling it “nuts.”

Watch From the Sidelines

The problem most traders have is that we want to be involved in every big move the market makes. It’s hard for us to watch from the sidelines as the S&P 500 rallies 30 points in a day. It’s worse to be on the wrong side of the move. We want to be active. We want to take advantage of the increased volatility.

The problem is… these moves are nuts.

Nobody in their right mind was looking to buy stocks in late February. The stock market had reversed from a HUGE move higher and was in the midst of a sharp decline. The S&P 500 lost 47 points in about 47 minutes.

But, if you didn’t buy into that decline, you missed out on a HUGE gap higher shortly after.

Then, as the S&P was powering higher above the 2,730 level, nobody in their right mind was thinking about shorting stocks. The computers were firmly in “buy” mode. Shorting stocks into that sort of momentum rarely pays off.

But the S&P dropped a quick 20 points from that level. Traders who didn’t step up were left wishing they had.

In this sort of “nuts” environment, traders will do well to remember one thing… You’re not going to catch every trade. And if you try, you’ll likely end up taking losses.

It’s a far better strategy to take a step back. Map out a plan for where you think the market is headed over the next few weeks. Then… ignore the short-term swings and stick to that plan.

The stock market’s job is to shake us out of positions. It’s going to test our thinking. It’s going to make us second-guess our well-thought-out plans. In short, the market is going to make us “nuts.”

But, if we step back and look at the bigger picture… if we avoid the temptation to profit on every short-term move… then we can ignore the “nuts” moves. We can stick to our strategy and hopefully profit if/when we’re proven right on the trades.

For example, when the stock market moved lower back in February, I told subscribers the three levels at which I was looking to buy into the S&P 500: 2,650… 2,595… and 2,535. I used technical analysis to determine those levels well ahead of time. And, as the stock market sold off, I was buying stocks at each of those points.

It almost killed me to do so.

Wild Swings

Just like almost everyone else, I was shocked when the S&P traded below its 200-day moving average at 2,535 in early February. Nobody was looking for that large of a pullback off of the highs. And I was taking on plenty of heat from the long positions I had purchased at 2,650 and 2,595.

But here’s the thing…

When I set those price targets, I did so while the S&P 500 was trading well above those levels. There wasn’t any emotion in my decision. I simply thought, “Wouldn’t it be nice if the S&P would pull back to these points and I could use it as a chance to buy stocks?”

We got the pullback, and I bought at those levels (To be completely honest, my assistant bought for me at those levels. I told him how much money to put to work at each level, and I said to ignore me if I changed my mind. His job security was based on him following those instructions. He earned a nice bonus based on those trades.)

Then, as the stock market bounced, I once again used technical analysis to determine the upside levels at which I would look to sell those positions and maybe even establish short trades. Based on previous similar corrections, I figured the S&P 500 could rally to between 2,680 and 2,730. So I started taking profits as the market hit those levels. And I told subscribers to add short exposure as the S&P reached 2,730.

In the meantime, there have been all sorts of wild swings back and forth. The market has pushed higher. It has fallen lower. It has done everything possible to shake traders out of their positions.

But when I set the target for those short position, I did so based on similar previous conditions. Those conditions suggested that a move above 2,754 on the S&P 500 would mean we’re wrong on the trade and we ought to cut our losses at that point.

We can’t try to profit on every move the market makes in this environment. That’s just too hard.

But we can set our price targets. We can place trades according to where we project prices to be a few days or weeks from now. We can pinpoint the levels where we’ll admit we’re wrong and take a loss on the trade. We can identify where we’ll take a profit.

And we can ignore everything that happens in between.

That’s really the only way to profit when the market goes “nuts.”

Best regards and good trading,

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Jeff Clark
Editor, Delta Report

P.S. Next Wednesday at 8 p.m. ET, I’m holding a one-night-only online training event to ensure you’re prepared for the volatility ahead.

We’ll discuss one of my most reliable trading indicators for volatile markets. And I’ll tell you how it could increase your returns by over 1,000% – even in unpredictable times. I’ll also send you a copy of a special report full of my most prized trading tools, just for dropping by.

You don’t want to miss this one… Reserve your spot for Wednesday’s event right here.