Good morning!

What an extraordinary week, with a panic market sell-off, followed by several days of extremely volatile moves up & down, and now it seems a strong recovery (for now anyway). A big upward revision in US GDP figures certainly helped, and also I noticed that the price of oil jumped sharply, which has triggered oil shares having a good bounce - which is positive for the main Indices of course.

On the trading front, it's been a very successful week for me - when things started looking wobbly, I protected myself with some large cap short positions last week, closed them at roughly the right time early this week, and went heavily long of good quality, oversold US large caps. It's worked a treat, but I closed off all my large cap US longs last night, as they have rebounded as I expected, so the purpose of the trades has been achieved.

Of course if you really are still nervous, then now is the time to be selling stuff - after prices have recovered, not panic selling when prices have crashed. So I'm having a thorough review of my portfolio, and chucking out bits & pieces that I don't have conviction in. That's a really good discipline, and it frees up money for new, better purchases.

Large caps

I must admit, my recent short-term trading in liquid US stocks, has really got me interested in doing more work on US large caps. They are wonderfully liquid, and the great thing is that you can take bigger than usual positions, then sell them at any time, if you change your mind, or if the market takes a turn against you. With IG Index you can trade US large caps from 9am UK time, to about midnight (or a bit beyond, I think), and I have found that these much longer trading hours greatly improve opportunities to react to newsflow.

Liquidity

Contrast that with the lack of liquidity in small caps. When the market went really wobbly on Monday, a lot of small caps were almost impossible to deal in any size. So the big risk with small caps is that you may not be able to exit, even if you want to. That's fine if markets recover, and it might actually be helpful, in preventing you from panic selling at the bottom! But what if markets had continued plunging? It would have been absolute carnage in…

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