Panic?

Is it time to panic? By the sudden influx of e-mails, I would assume than many of you are panicking. The VIX made a huge spike to 22.27 and closed at its high for the day. This would indicate an increase in concern by the professionals. This spike in fear shouldn't surprise us too much. I told you about the key support area on the VIX (at 17) a couple of weeks ago. I've been talking about a possible correction for the last 3 months. Is this the start of a larger correction? If I knew that for sure, I'd never post a losing trade for the rest of my life. When you trade a trend, you must accept the fact that you will lose money when the trend finally changes. Professional traders worry more about managing reward to risk than they do about predicting the future. Many of you may wonder why I posted several bullish looking patterns on the day before the market dropped 200 points. The postings were based on stocks that looked to be in a nice reward to risk position. Even when we calculate the reward to risk, we sometimes forget the possibility of the risk or loss. We can also get caught up in the game of looking at things in hindsight...believing that we should have seen it coming. The S&P 500 is sitting on its 50 day MA. The trend is still considered up. If the trend moves up from here, you can say that the 50 day MA held as support and that you should have known to buy right there. If if the market breaks below the 50 day MA tomorrow, you can point to the spike in the VIX and the huge selling volume from today as reasons why you should have known it was going to go down. Ultimately you can't know for sure what the market is going to do next. I know I say that a thousand times, but I'm hoping that some of you are starting to understand it. Professional traders will tell you that the more they learn about the market, the more they realize that they can't predict the market. Don't focus on what you can't control. Focus on what you can control. What can you control? You can control how much money you risk in a trade. You can create consistency by trying to enter and exit trades based on a core philosophy or system. You can chose to trade or not to trade based on conditions that you feel are in or out of favor. The point of having a sound money management plan is so that you don't lose all of your money on a 2-3 day drop in the market. If you find that you are very upset over a trade that went against you, you need to understand that you did not fully accept that risk. The amount of the risk was too high...and your level of anger is a reflection of that. The higher risk brought with it the potential for the higher gains. The focus probably shifted from the possibility of the loss to the potential of those higher gains. If you did suffer a drawdown over the last two days, don't try to get it all back immediately...especially if you are upset with the loss. Take a few days off and allow yourself to calm down. There will be many opportunities to get it back. This is definitely a time to build your cash and reduce your risk in the market. If the market does continue to fall, you will be glad that you kept most of your money out. It will also give you an opportunity to make a lot more money when it starts to move up again. One area of hope...each of the last big spikes (up) in the VIX has been followed by a rally in the market. I will be watching tomorrow to see if the buyers are strong enough to keep the uptrend going. I haven't been stopped out of my trade on the SMH...yet. HOG reports earnings tomorrow before the market opens. We'll see if it finally makes a move down, or if we get stopped out on that as well. I'm emotionally prepared to accept either result. Have a great weekend.