Here's The Right Profit Plan For This Wild Market

We've seen the Dow swing from 29,100 to 26,763 since the highs of Sept. 2 – and if that's not "volatility," I don't know what is.

That's probably pretty scary for buy-and-hold investors, but the thing is, as traders, we absolutely need that volatility; if stocks won't budge, most trades just won't make money – definitely not the kind of money that frees you up to spend an hour trading and the rest of the time doing what you want.

So we need markets to swing around a bit, and that means we also need a good plan to stay on the winning side of those big moves.

It turns out "plan your trade and trade your plan" is an old Wall Street saying for a really good reason.

Let's do it – it's easier than you might think…

But I'm also keeping tabs on volatility itself – in other words, watching for spikes and dips. Just popping over to Google Finance and checking on DJI or INX or IXIC (the Dow, S&P 500, and NASDAQ) will only give you a rough idea of what's happening.

I mean, think about it: If you were flying a jet for a living, you wouldn't just check the five-day forecast on Weather.com and hit the skies, would you? No – you'd watch out for weather on your own radar, right in front of you, in real time.

To really keep tabs on volatility, you want the infamous VIX – the Chicago Board Options Exchange Volatility Index. Maybe you've heard it called the "Fear Index."

Strictly speaking, it measures volatility on S&P 500 index options. In English, that's what the market expects to see in terms of volatility on those options in the next 30 days.

But since the S&P 500 is a big, broad equity index, the VIX makes a pretty good yardstick for volatility in stocks. The VIX reads high when there's lots of volatility; the more nervous the market, the bigger the spikes. It reads low when conditions are calm.

It almost hit 83 – an all-time intraday high – back on March 16, when it was starting to become clear that the coronavirus was going to hit like a ton of bricks and states were shutting down.

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