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How to Avoid Big Losses During the Government Shutdown

CHARLOTTE, N.C. ( Stockpickr) -- Many traders and investors are worried about losing value in their stocks --- or have already experienced losses -- during the ongoing U.S. government shutdown. My advice: Be flexible in your thinking but rigid in your rules.

>>Sneak Peek: 5 Stocks Hedge Funds Love This Fall

If the market is fluctuating back and forth as it has been lately, you need to learn to be flexible by observing and determining what is working and not working. If a stock hasn't moved in two or three days the way that you wanted it to, then you should consider taking a minimal gain or a strategic loss and moving on to one that will work for you. Make sure you are flexible trading stocks that are going up and down, and continue to remain "market neutral." Look for strategic entry points to buy and sell short, at or near the bottom or top of the repeating channels.

I recommend having a rule that if a stock pivots above the morning high, with heavy volume coming in, you will buy it, then put in place a $100 stop-loss at 20 cents 30 cents below that point. If you are a swing trader, you will want to buy fewer shares and widen your stop-loss.

For examples of two potentially excellent swing trades, I have AK Steel ( AKS) and Skullcandy ( SKUL). These are stocks that for the first time in two years have broken above a weekly moving average and are resuming their climbs back up to much higher prices.

>>5 Big Stocks to Trade for Big Gains

Learn to read market sentiment. If the futures are down more than 50 points on the Dow Jones and the market opens and starts to sell off, then be very cautious buying. While we remain within the mass uncertainty of the government shutdown, take what the market is giving you and go short if we are in a downtrend. Then trade the direction of the market -- for now that is down. At some point we will turn higher and look to go long, based on the fact that historically when the MACD crosses higher on stocks in October, they lead to much higher prices for equities in the following two months.
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