Making sure you’re protected from losing significant amounts of money is just as important as trying to make more money.
And while you may not realize it, the stock market gives us hints when it’s time to be defensive.
Here’s the hint it’s giving us now…
The stock market is cyclical.
No matter what, we have to keep that in mind in order to be able to both earn money and protect what we have.
When we lose sight of that, we become vulnerable. We may start becoming fearful when we should be greedy, and greedy when we should be fearful.
And right now, the market is showing us that this is a great time to protect ourselves…
Let me explain by first showing you the chart of the Volatility Index (VIX) from Stockcharts.com:
The VIX is also known as the fear index. It represents the expected stock market volatility over the next 30 days.
Based on the price of call and put options, the VIX is normally opposite the benchmark S&P 500 overall market index.
As you can see on the chart, the VIX saw that big spike in October as the market experienced that heavy pullback at the same time.
The other thing that stands out is that the current price of the VIX is very close to its lows of around $10.50.
And the VIX works like a rubber band…
When it’s stretched one way or another, it will normally snap back the in the other direction. And as it’s being stretched down further and further, the likelihood of a strong snap back up becomes more likely.
And that means a market pullback becomes more likely as well…
Of course, this isn’t a certainty and we simply cannot know exactly when a snapback would occur. However, we can make sure we’re prepared for such an event.
To do so, I will be tightening my grip on my investments. If the market begins a pullback and my positions are suffering, I’ll make sure I cut them loose early rather than hang on as they experience losses of more than 10%.
What makes more sense, cutting losses and waiting for healthy stocks to rebound, or sitting on stocks that are falling and losing you money?
Click Here: Get a free Pick and the 7 Secrets to Finding Top Penny Stocks
