Good morning, traders…
Shocked by yesterday’s price action?
You’re not alone.
NVIDIA posted strong earnings on Wednesday afternoon.
The market gapped up in after-hours.
Everyone assumed the selloff was over, and it was time to get long…
Then, around 11:00 a.m., the entire market reversed.
The major indexes fell off a cliff:
A student asked me what caused the sudden drop.
My answer: It doesn’t matter. Price action is the truth.
Why the market is doing something doesn’t matter in the moment.
You must respond to price action, not justify it.
There’s a specific framework I used to protect my account yesterday while every stock was getting demolished.
Understanding THIS can save your account on huge red days…
The Mindset That Saves Accounts
Traders often come to the market with fixed expectations.
Yesterday, they expected NVIDIA earnings to launch a sustained rally.
That expectation led to disaster.
Your expectations don’t drive the market.
The market does whatever it wants.
Think this way instead: “I’d like the market to do this, but the market can do whatever it wants.”
Expect nothing. Respond to anything.
The VIX “Friendship Test”
A steady friend is predictable, reliable, shows up, and follows through.
An erratic friend is unreliable and unpredictable.
You wouldn’t trust an erratic friend to watch your house, your kids, or your jewelry box.
So don’t trust an erratic market with your positions, your money, and your portfolio.
You should only trust them in the market when it behaves like a steady friend.
The VIX tells you which friend you’re dealing with.
When the VIX is trending down, the market tends to have follow-through. Around 80% of stocks follow the market.
That’s a reliable friend.
When the VIX is above 19.67, the market becomes erratic. Follow-through disappears. Trends fail. Multi-day positions get chopped up.
That’s an erratic friend.
Therefore:
Above 19.67 VIX: stay small and nimble.
Below 16 VIX: the market can trend, and swing trades have better odds.
Follow-through is everything. You cannot hold anything other than short-term day trades without follow-through.
When the VIX trends down, the market trends up.
When the VIX spikes or becomes erratic, the market loses follow-through.
This relationship is reliable. Use it to your advantage.
The “If-This-Then-That” Mentality
“If this happens, then I will do that.”
Yesterday, I laid out several key SPDR S&P 500 ETF Trust (NYSE: SPY) levels before the move:
$675 was natural resistance. So I shorted at $675 with a willingness to be wrong.
My rule: if the VIX moved back above 19.67, I would add to the short.
Both happened. I followed the plan.
I built a big hedge because:
- 1. The VIX suggested the market would be erratic.
- 2. SPY broke the levels I laid out.
- 3. The “if-this-then-that” plan dictated it.
The 6-Step Framework
Here’s the framework I’m using every day to stay safe in this crazy market:
1. Be rigid in rules, flexible in expectations.
2. Price action is the truth.
3. Follow-through only exists when the VIX is calm.
4. Use if-this-then-that logic for all trades.
5. Adapt quickly. Don’t cling to any belief about what the market “should” do.
6. Size small (or even paper trade) until this mindset becomes natural.
How do you think I bagged these massive peak gains last month?
- +159% in 2 days on MRK*
- +49% in 1 day on GOOGL*
- +64% in 2 days on EOSE*
- +244% in 1 day on PYPL*
And turned $50 into $1,260 in just 2 months?*
We’re about to cover that (and more) in my 2-Day Simpler Options Bootcamp…
Happy trading,
Ben Sturgill
*Past performance does not indicate future results
