The markets are trading at all-time highs. Isn’t it dangerous to get in now?

A lot of people are afraid of the markets trading at all-time highs. They wonder if they’re setting themselves up for failure. We have an answer for those wondering.

Our customer success team receives hundreds of emails and chats each week. Many of our newer members are excited to begin using TradeStops, but are afraid that they’re getting in at the wrong time.

Here’s an example:

“The markets are trading at all-time highs. Isn’t it dangerous to get in now?”

This was a question we received from our member GT on August 15.

But there’s a catch. See if you can spot it.

Here’s a one-year chart for SPY, the ETF that represents the S&P 500. You’ll notice the high price on August 15th.

Did you notice? Look at the bottom of the chart.

This question was asked on August 15… of 2016! That’s right, a year ago is when we actually received this question from our TradeStops member.

SPY closed at $214.73 a year ago. We all know what’s happened in the meantime. SPY closed at $246.51 on August 15 this year. That’s a gain of 14.80%.

And this highlights the fear that many investors have. It’s always hard to invest at all-time highs. Many talking-heads are telling us that the markets are going to crash soon. They might be right. They may be wrong. But it doesn’t matter to them. They don’t handle your money. You do.

So how do you handle this situation?

Readjust your perspective. It’s not easy, but that’s the key to your success. By using the TradeStops Volatility Quotient (VQ) and Stock State Indicators (SSI), you’ll know your actual risk before getting into the market.

Let’s take a look at SPY again. It closed on Friday at $242.71. It’s still trading nicely in the SSI Green Zone. It’s only down 2.08% from its high.

Here are the different stop loss settings for SPY from the TradeStops website. As you can see, the normal risk for SPY, using the SSI Stop is $222.63. That’s another 20 dollars which is a large move for SPY. If SPY trades below this number, you’ll know that the normal volatility for SPY has been exceeded.

If you were to buy SPY today, you might want to use the full VQ stop for your new position. Ultimately, the choice of Stop Loss settings is in your hands as an independent investor.

The key to being a profitable investor in the long-run is to understand the risk you’re taking in each position. Yes, at some point in time, you’ll stop out of SPY with a loss of about 10%. But you’ll never take a 50% loss in SPY because you know what the normal volatility is.

Be patient, take the right amount of risk, and the odds will swing in your favor in the long run. As TradeSmith advises, ignore the noise and focus on the signals.

Have a good week,

Tom Meyer
Education Director, TradeStops