I had a different plan for what I would discuss this weekend.
However, given the wild market action we saw today, it seemed appropriate to talk about turbulence.
I've traveled extensively throughout my career, visiting more than 200 cities over a 15-year period. While I don't miss required travel, I do enjoy recreational trips, though I definitely miss having airline status.
Having flown so frequently, I've ridden out some rough flights.
I distinctly remember one flight where we were navigating through a storm, and the turbulence was so severe we were literally leaving our seats, testing just how "low and tight" our seatbelts were fastened.
Each drop and bounce was accompanied by screams and expletives throughout the cabin.
Despite the fact that these drops caused my stomach to turn like a rollercoaster, I wasn't afraid.
Sure, experience played a role, but I believe the real reason I remained calm was twofold: understanding what I could control and knowing the facts that kept me safe.
I only had control over my reaction. I couldn't change the turbulence, couldn't help the pilots, and couldn't make the plane any safer than it was manufactured to be.
So I sat tight because that's all you can do.
While strapped into that bucking bronco of a flight, I thought about what I knew: these aircraft are tested to 150% of maximum load, or 1.5 times the worst conditions any plane would ever face.
Engineers bend the wings to nearly a 90-degree angle, with deflections between 18 and 25 feet. The movement in the cabin is actually the wing doing exactly what it was engineered to do: absorb the turbulence rather than resist it.
As rough as that flight was, we landed safely. No amount of panic or screaming would have changed the outcome, good or bad.
Today was definitely a turbulent day in the markets. We saw a massive drop of nearly 40% in silver, triggering significant margin calls and accompanying volatility across equities, currencies, and other commodities.
Adding to the chaos, my futures brokerage account experienced delays in both chart updates and order fills.
Just as with the airplane, I approached the market with the same two-part framework: What can I control, and what do I know?
I understand what I can't control, and I'm determined not to subject myself to worry or panic over those things. I couldn't fix my broker's technical problems, so I chose not to execute trades this morning.
I can't control market volatility, but I can assess it, and I know how to calculate and compare risk and reward with probabilities. When the market won't give me a fair price or edge, I have to sit out the trades.
I also know that markets tend to repeat patterns, and they've been doing so for decades.
Because I knew the gold-silver ratio had reached extreme levels (which historically indicate that metals have traded too far and are set for a significant reversal), I could prepare. I can't perfectly time reversals, but I can protect long positions or exit them.
I can also define price levels that will confirm bearish opportunities, so when prices fall, I'm not scrambling to analyze markets in the chaos. Instead, I'm executing based on what I know and how I've prepared.
To be clear, there will be situations beyond our control that won't end well, even with the best knowledge and preparation.
However, we will always be better positioned (even in crisis) if we accept what we can't control, remember what we know, and take the time to prepare and protect ourselves.
This market volatility will calm down. And even if it doesn't settle before the market experiences a massive correction, we can still prepare and profit from it.
Blake Young
Senior Market Strategist, TheoTrade