Originally Posted November 30, 2018. Last Updated May 11, 2019.

What is a Binary Event?

Binary events are market-moving situations where there are only two outcomes – one which will make the markets move up and one which will make the markets move down.

Binary events can flummox the best of investors.

So, how can you prepare?

Option 1: You’re Uninvested.

If you’ve been waiting on the sidelines in all-cash, now’s the time to start reviewing your Stock Shopping List and revising your Trading Plan, if necessary. 

If you feel the outcome is going to be positive and give a boost to the markets, you might consider opening a very small position in the stocks you’re interested in, buying 1/8-1/4 of your entire desired allocation.

However,  use extreme caution and only risk funds you’re prepared to have stuck in the markets for potentially years in case the negative outcome happens, instead.

Option 2: You’re Partially Invested.

If you already own positions and have been Buying in Stages, don’t do anything in advance of the event. The time to sell and take profits was before the news of the binary event hit the markets, not now.

Keep your powder dry and wait to see what the outcome is to determine how to proceed with your next move. If it’s positive, you’ll have the opportunity to consider taking profits. If the outcome’s negative, you’ll have buying opportunities.

Option 3: You’re Fully Invested.

If you have no cash on the sidelines and are already “all-in,” consider selling some of your positions that have the largest exposure to downside.

In the event of news involving another country like China, review your positions for company- or sector-specific exposure: think Apple (AAPL), the car manufacturers, the industrials like Boeing (BA) or Caterpillar (CAT) and other companies with exposure to the country or location in question.

If you do decide to sell, never sell all of any position. Just like you should always Buy in Stages, you should always Sell in Stages, too.

“Pull the weeds, keep the flowers.”

Should you decide to trim positions, unless you have companies with specific exposure to the impending downside risk, sell your losers, not your winners. Many new investors (and even seasoned ones) will sell the stocks where they have profits, feeling that taking profits is preferable to taking losses.

However, which stocks do you think will perform better after a sell-off – your proven winners who have consistently demonstrated a great track record and earned you profits, or your losers who weren’t able to earn a profit before the bad news made their jobs even harder?

For Everyone: Don’t get mad, Get Irked.

Remember, no matter how bad (or good) the eventual outcome is, this too shall pass. Even a bad outcome for your portfolio provides a valuable learning experience for future investing strategies.

Plan ahead, don’t make rash decisions, and avoid allowing emotion to affect your judgment or decisions.

Sometimes, the best remedy is the fact that misery loves company. We’re in the markets right alongside you! Don’t get mad, Get Irked, and visit our website for regular updates.