The First Thing You Need to Do Here Is to Be Clear About Your Goals

The wild and chaotic market action conditions and many market players are feeling confused about what action to take. There are legions of short term traders trying to catch a bounce in the indices, there is a crowd of longer term investors that think it is time to snap up some bargains and there is another group struggling with margin calls and panic that just want to escape the misery.

The first thing you need to do here is to be clear about your goals. If you are a short term trader looking for a bounce than you have to make a few stabs at a trade and try to nail the timing. Manage trades tightly and, above all else, don't let a failed trade turn into an investment.

If you are looking to build longer term positions in individual stocks you should not be feeling any anxiety to move quickly. The coronavirus issue is not going to be fixed overnight and even if there is some positive news flow that are coordinated action by central banks there will be plenty of time to add to positions.

The worst thing you can do is to worry too much about being at the bottom tick. It is impossible to time that precisely and usually it is far better to make incremental buys over time rather than just one large buy. Look to build positions over time rather than rely too much on trying to catch a temporary dip.

When the market corrected in the fourth quarter of 2019, the S&P 500 did not surpass the prior highs for about six months. The Russell 2000 ETF (IWM) has still not exceeded the highs it hit in the fall of 2018. The point is that it is going to take quite a while for stocks to return to the point they were at just a week or so again. You aren't going to miss out on new highs if you move slowly.

I see quite a few small cap names I'm anxious to buy but I don't feel any need to build up positions quickly at this point. When they start showing some sustained upside I'll add and it won't bother me one bit that I didn't buy lower.

A lot of investors are well conditioned to try to buy sharp pullbacks. It works well at times but it can be an ego thing that blinds you to what is really the most effective strategy for making big profits.

We have a little bounce action now but the big question this afternoon is how will market players want to position themselves for potential COVID-19 news over the weekend. The risk of more negative news is very high but after the slaughter this week, some of it must be already discounted.

At the time of publication, James "Rev Shark" DePorre had no position in the securities mentioned.