Jeff  Carter

Pro traders should know what to do. Cut your size, trade small-and pick your points. This post is designed for the average Joe Six Pack citizen sitting at home and wondering if his mattress is better than the market to build wealth.

There is a lot of fear out there. Understandably so. Fear isn’t something that drives stock markets higher. You are sitting there tonight, and if you are watching business channels, you are seeing stocks continue to plummet overnight in foreign markets.

What should you do?

Well, tonight you can’t do anything. Your broker is watching TV just like you and American cash markets are closed until 830am Central Time tomorrow morning.

First, don’t call your broker when the market opens. He won’t know anymore than you. If you get through, they will parrot talking points given to them by their research department prepared last night.

Second, don’t sell. That’s what the pros want you to do, panic. The end of the world isn’t near-although we are going to continue to go through some really rough patches. If you are looking at your retirement wilt away, don’t worry. Someday it will come back. I have seen my retirement funds get clocked several times, I am 49 and don’t plan on hanging it up for a minimum of 15 years anyway.

Third, a lot of the selling tomorrow morning will come from funds that have to sell to raise cash for margin. They have to put up cash to hold positions-only way to raise it is sell.

Fourth, This is not a stock picker’s paradise. If we have learned anything over the past two years is that no one single person can beat the market. You are much better off in a no load fund that replicates the S&P 500. It’s called the Efficient Market Hypothesis. Eugene Fama proposed it in 1962 at the University of Chicago, and there is enough research to prove it over the years. If you are inclined, sell any individual stocks you have, or focused funds you have tomorrow morning and roll them into a no load fund that replicates the S&P. Virtually every major mutual fund company has one. Your accounts value then won’t be beholden to a stock-but simply the broader market. Over time it tends to return 12%.

Fifth, if you are out of work and panicked, I empathize with you. Take cash you have and bet on yourself. Start a business. Get any job. It will keep your mind off the ups and downs of the market and if you start generating some cash it will make you feel a lot better.

Here is why we are where we are:

We have a lot of debt.

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.