5 Ways Traders Can Survive (and Thrive) in October

Traders: start your engines. The calendar is about to flip to October.

October is home to most of the worst one-day losses in the Dow Jones Industrial Average. From 1929 to 1987 to the massive sell-off in 2008. Memoires of panic-selling and crash-type market behavior are embedded into trader's psyches around this time of year.

It's no joke. Stock market history is littered with massive declines that all unfolded in October.

Most of us only know the Great Depression through the history books. October 28, 1929 still ranks as the second largest one-day drop in the Dow, on a percentage basis.

The top 3 largest one-day percentage losses in the Dow all happened in October.

Dow Jones Industrial Average Largest One Day Percentage Losses

  1. Oct. 19 1987 -22.61%
  2. Oct. 28, 1929 -12.82%
  3. Oct. 29, 1929 -11.73%

Source: Wall Street Journal

More recent Octobers

Who can forget 2008? The start of the global financial crisis. The first hint of the global financial crisis began in September 2008.

The week of September 15 has been etched in the financial history books with some of the largest upheavals ever seen. That week started with the Fannie Mae and Freddie Mac takeover, the Lehman bankruptcy, the AIG bailout, and ended with the introduction of massive government legislation to buy the “toxic” mortgage debt. Ripples were felt quickly in the markets.

2008: One Day Percentage Loss in Dow

  • Oct. 9, 2008 7.33%
  • Oct. 15, 2008 7.87%

The ensuing global financial crisis took its toll on economies around the world and some say the global economy still hasn't fully recovered or returned to normal growth and inflation patterns.

Other nasty October surprises included:

  • Oct. 27, 1997 (-7.18% )
  • Oct. 18, 1937 (-7.75%)
  • Oct. 5, 1932 (-7.15%).

Just because the ghosts of October past may be lurking on Wall Street this month doesn't necessarily mean the market will crash. But, it doesn't hurt to be prepared.

Sarah's Survival Guide to Crash Month

1. Understand what you can and can't control.

You can't control the direction of the market or the outcome of your trades. You can control your emotions, reactions and actions.

2. Turn off the news.

The talking heads on CNBC only add more "noise" to a declining stock market. Stay focused on your charts and your trading plan. Talk to your mentors and others in your trading community. Avoid the media hype as that will muddle your picture. The folks on CNBC are not traders they are looking to make ratings, and that means sometimes sensationalistic portrayal of events. It won't help you.

3. Check your emotions at the door.

Crashing stock prices often bring out strong emotions such as fear, anxiety and depression. Trading is a business. It's about risk/reward, identifying entry points and using stop-losses. Create your trade plan. Initiate your trade and follow through on your entry and exit points accordingly. If you sense your emotions taking over. Step away from the computer. Walk around the block. Drink a glass of water. Stay focused on your trade plan.

4. Remember, the market overreacts.

When the herd takes over with panic and fear the selling can be swift and furious. Some of the massive one-day drops in Octobers have actually presented buying opportunities. Don't be surprised if selling overextends a market on the downside, but then quickly snaps back.

5. Use periods of market calm to make a plan.

The stock market isn't crashing right now. Use this time to 1) make a shopping list of stocks that you might want to scoop up if they suddenly are on sale. 2) Fine tune your trading plan for this week and this month. The more homework you can do to prepare for your trades, the more comfortable you will be sticking with your plan no matter what happens.

My name is Sarah Potter. I started this company because I wanted to empower others to learn what I've learned. I trade successfully and consistently and so can you. I hope you will join me and my robust trading community. Together we all will succeed. Sign up to receive free option trading lesson videos here, or contact me if you've got any questions. I look forward to trading with you soon.

Read more: How To Invest In Options: What I Wish I Knew 10 Years Ago

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