Editor’s note: This article and video of timeless investing tips was originally published on Dec. 22, 2020.
It’s only natural for investors to want to hedge their portfolio…
And over the past year, it has become crystal clear to many traders and investors why hedges are so important.
That’s why I want to show you exactly how to hedge a portfolio, along with three other tricks to reduce overall risk.
The most important thing I look for when I hedge my portfolio is the ability for the asset to move higher without having to lock in the loss on my position.
For those of you that don’t understand what that means, let me explain…
3 Ways to Hedge Your Portfolio
If you take a look at the S&P 500 (or the chart I’ll show you in the video below), you’ll notice that the S&P 500 has been hitting all-time highs.
But if you look at its momentum levels, you’ll see that the stock market is overbought. And not only is it overbought, it’s diverging.
It’s called divergence because there are lower highs on the relative strength index (RSI), a tool used to gauge whether assets are in overbought or oversold territory, and higher highs on the price action. Momentum levels are moving lower, but the S&P 500 is still rising.
This is telling us that momentum levels can’t keep up with the upside on price and that something has to give. And that something is usually the S&P 500.
I’m not anticipating a major correction. Just a minor one. Maybe the S&P 500 will go to its 50-day moving average or what I like to call its twilight zone (between its 50-day and 200-day moving average).
Regardless, the sell-off will be short and it doesn’t make sense for traders to unload or put stop-loss orders on their positions since they usually get picked off.
So how can you have your cake and eat it, too?
It’s simple. Hedge your portfolio to offset the risk and protect your portfolio against downside in the stock market.
In today’s video I’m giving away three assets you can use to hedge your portfolio. And again, these assets all tend to move up when stocks move down.
Roger Scott
Roger Scott Trading
P.S. Wall Street Is Stuffing This Stock With Cash
Jack Carter has tracked down unusual Wall Street activity and uncovered its dirty secret…
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