Silver has finally broken $50. Next stop, the moon!

Before you rush out to buy the shiny grey metal, keep this in mind…

Silver rallied $3 just yesterday. And when the futures market reopened after 6 p.m., it ripped another $2 before midnight.

It gained a mild half a percentage point today. But don’t let the meager return deceive you. Silver bounced between $48.75 and $52.49 intraday.

Talk about volatile!

In fact, the metal’s historical volatility is reaching levels comparable to the 2011 markup. These conditions are downright treacherous.

So if you’re venturing into the silver market, here are a few dos and don’ts of the silver trade that will safely carry you to the other side…

Don’t Chase

The fear of missing out (FOMO) stands alone as the most destructive emotion in trading. Averaging down, or adding to a losing position, is right up there, too.

But FOMO is a killer. It’s insidious, often causing the worst damage when the market’s red hot and you can’t lose. Here’s the thing…

You must be disciplined to catch the big winners that make your year or perhaps your long-awaited retirement possible. This is why we rise hours before the sun, boot up our computers, and prepare.

FOMO will wipe it all clean in an instant.

So if you struggle with the fear of missing the big move, say it out loud: Don’t Chase! I do it all the time. You can even print it and tape it to your office wall. (The same goes for the following rules.)

Legendary trader Paul Tudor Jones had no problem hanging his trading rules and principles on his walls.

I also like to go for a walk and remind myself that the market will always provide another opportunity.

Sometimes, getting away from the screens and clearing your head will keep you from making irrational decisions that ultimately cost you money.

Wait for Price to Consolidate

When you’re dealing with an explosive market, your next opportunity often comes in the form of a short consolidation in price.

These periods of tight price action are commonly referred to as flags or pennants and can last a few days or a few weeks. 

But be careful. You must play it tight and remember:

1. Flags or pennants seldom last longer than three weeks
2. Price often breaks higher with the same gusto that preceded the pattern

Buying these breakouts works well for swing trading timeframes or shorter.

Don’t Pyramid

I advocate adding to winners and cutting losers short. You always want to ditch trades that are picking your pocket, especially in a hot market. That said, it can be difficult to add to winners in a runaway market.

This is a tough one for me. I ascribe my habit of increasing my position size to The Complete Turtle Trader by Michael Covel. It was the first market-related book I read. And like any good book, Covel's story of famed trader Richard Dennis and the traders he taught to use his strategy left me with far more questions than answers. (And here I am almost twenty years later.)

One aspect of the Turtle’s strategy stuck with me: pyramiding, or adding to a winning position. I still use it today; however, the last thing you want to do in a market that’s turning vertical is add to an existing trade.

Before you know it, you’re stuck with a top-heavy position, and it only takes the slightest down move to flip your bright green unrealized PnL to a burning red.

The best course of action while navigating the silver market is to trade small and let your winners run.

Use a Trailing Stop

At the same time, you must protect open profits. Trading is a constant balancing act, but protecting your capital is always job number one, whether you’re trading silver or A.I. stocks.

One of the easiest ways to do that is to take profits at your targets and move on to the next trade.

But when a market is running in melt-up conditions, or is churning between your entry and predetermined exit level, you’ll want to turn to some form of trailing stop.

This could be a time stop that triggers after a number of days or weeks. It could also be a simple percentage.

I prefer using a stop based on technicals, such as a moving average based on volatility. It doesn’t matter what you use as long as it fits your personality and trading style.

Always Take Windfall Profits

I had to learn this last one the hard way. I was shorting the British pound in 2016, following the Brexit vote. Every morning, a new sell order triggered as the pound dropped like a rock. (I was pyramiding, too.)

The little piker in me thought he was George Soros taking on the Bank of England. Well, as you can imagine, the pound stopped falling in dramatic fashion. Before I could react, my open profits were cut in half.

An immeasurable regret followed.

I prefer to avoid emotional drawdowns. Taking large profits from positions I’ve recently entered and quickly moving on to the next trade helps me achieve this, especially during a runaway bull market.

Before you scramble to buy silver, gold, or the hot speculative growth name du jour, take a deep breath and slow down.

Use these rules. Say them out loud. And always remember, the market will offer you a better opportunity sooner than you think.