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The stock market reaction to “Liberation Day” saw the worst drops in market indexes since the Covid crash. Then, as now, the future results of policies are opaque and the market reaffirms its discomfort with uncertainty. As the stock market correction starts shifting to bear market territory for the indexes, it’s worth remembering that cash is a position. Even an active strategy like swing trading benefits from less activity when the environment is poor. But keeping the powder dry has huge benefits when the eventual uptrend market occurs.
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Trump’s Sweeping Tariffs Wreck Stocks. Here’s What Comes Next.
A Rocky Start For The Year
The IBD SwingTrader product has a model portfolio to track trades based on alerts sent to subscribers. Every starting position, add, trim and exit is accounted for. As 2025 began (1), we started with a cash position from the holiday period and quickly ramped up to exposure on margin once we started making progress for the year (2).
But since Dec. 18, we’ve found ourselves in a choppier market and so we’ve been willing to reduce exposure and raise cash quickly.
Why This Swing Trader Shortens His Time Frame During Stock Market Corrections
In early February, that sometimes meant raising at least 50% cash (3) and sometimes even more (4) within a day or two. But on Feb. 21, the sharp drop in the indexes and leading stocks changed things (5). It went from a choppy market with ups and downs to just straight down. It had the look of what we call a “vertical violation.” We went from exposure ramping up and down quickly to a more cautious stance. Breaks like that usually need time to heal.
“It Was My Sitting. Got That?”
An often quoted adage from famed speculator Jesse Livermore considers the advantages of sitting. “It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!” Many consider that wisdom to solely apply to the advantages of holding a position for a big gain. That was especially difficult in Livermore’s time with the mechanics of heavy leverage.
But there’s another interpretation. Sitting out of a market, rather than with a position, has its advantages as well. By not riding the market down, you can pile up a vast outperformance over market indexes. With the inevitable false starts, there’s less pressure that a market rally will leave you behind when you pile up that kind of cushion.
Whether you decide to go in light (6) to test the waters, or a little heavier when you can manage your risk with an upside reversal (7), you have the flexibility as a swing trader to back away quickly at the first sign of trouble or when a binary event looms where you might not have an edge.
Much analysis went into what the possible news would be when President Donald Trump announced his tariffs. At the end of the day it was the market reaction that mattered most (8). Going into the event all in cash gave us huge outperformance. If it had gone the other way, we would have had plenty of cushion to give back before we got left behind.
A Reason For Optimism In Stock Market Correction
An even more compelling argument for the sitting in cash is how it keeps your powder dry. Building that kind of cushion of outperformance lets you get more aggressive when the market does finally turn. That was what happened with SwingTrader after the Covid crash.
We didn’t know the recovery would happen as quickly as it did. Just as we don’t know when the recovery will begin from our current stock market correction. But when the turn did happen, we had a huge advantage. The flexibility to get aggressive quickly and the starting position with a huge cushion allowed us to get our best year of performance yet.
Our sitting set us up for success and the big money followed.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
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