Archives of “bear market” tag

rss

3 Dos and Don’ts Most Traders Learn the Hard Way from Market Wizard Mark Minervini

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The following article is an excerpt from Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market by Mark Minervini with permission from McGraw Hill Publishing.

How to Handle a Losing Streak

A losing streak usually means it’s time for an assessment. If you find yourself getting stopped out of your positions over and over, there can only be two things wrong:

1. Your stock selection criteria are flawed.

2. The general market environment is hostile.

Broad losses across your portfolio after a winning record could signal an approaching correction in a bull market or the advent of a bear market. Leading stocks often break down before the general market declines. If you’re using sound criteria with regard to fundamentals and timing, your stock picks should work for you, but if the market is entering a correction or a bear market, even good selection criteria can show poor results. It’s not time to buy; it’s time to sell or even possibly go short. Keep yourself in tune with your portfolio, and when you start experiencing abnormal behavior, watch out. Jesse Livermore said, “I’m never afraid of normal behavior but abnormal behavior.” (more…)

Top Ten Things Traders Must Change to Survive

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
  1. When the market goes from bull to bear, or from an uptrend to a down trend you must change from going long to going to cash or selling short.
  2. When a market recovers from a bear market to an uptrend over taking the 200 day moving average you must go from bearish or neutral to long.
  3. New bull markets most of the time have new leaders you can’t just play the same ones from the last up trend.
  4. When you make a trade and it goes against you, then you were wrong. When your stop is hit you must change your position and get out.
  5. When you have a strong opinion about a trade but it goes the opposite of what you believe day after day you must change your mind, you were wrong.
  6. When a trade does not go the way you expected in the time frame you had planned you have to take a time stop and change to something that is moving.
  7. Each day you must change and grow as a trader and improve on your skills through continuous learning.
  8. While the market will change the principles of winning through risk management, correct trader psychology, and playing the probabilities will stay the same.
  9. The market rotates and different market capitalizations come into favor and out of favor, follow the money.
  10. Different sectors rotate in and out of favor based on the cash flow of earnings, follow the capital.

6 Types of Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
  • Pretrader. Everything is new at this stage, and everything is difficult. This is the point where the trader is learning the very basics of charting and of market structure and is also just starting to explore the marketplace.
  • Novice trader. At this stage, traders are not trading to make money; they are trading for experience and to begin to deal with the emotional challenges of trading. One of the main signs of progress in this stage is that the trader will start lose money more slowly than before—still losing, but losing less often and less consistently.
  • Early competent trader. The first step toward making money is to stop losing money. A trader whose wins and losses balance out (before commissions) has taken the first steps to competence. (At this stage, the trader is still losing money due to transaction costs and other fees.)
  • Competent trader. The first stage of real competence is achieved when the trader is able to cover transaction costs with trading profits. Reaching this stage may take a year and a half to two years, or more. Consider this carefully—two years into the journey a realistic expectation is to finally have accomplished the goal of being able to pay for your transaction costs. This may not seem like much, but very few individual traders ever survive to this stage.
  • Proficient trader. Here the trader starts making money. Errors and mistakes are far less frequent, but, when they do happen, they are corrected and reviewed, and the lessons are quickly assimilated. The trader has been exposed to the stressors of trading so many times that they have now lost most of their emotional charge and is able to approach the markets in an open, receptive state. As competence grows, the trader can look to manage more money; developing the skills of trading larger size and risk becomes a focus.
  • Experienced trader. It is difficult to imagine a trader becoming a true veteran without living through a complete bull/bear market cycle—about a decade in most cases. This trader has finally seen it all and has also become cognizant of the unknown and unknowable risks that accompany all market activity. It is possible for developing traders to gain much of this veteran trader’s knowledge through study at earlier stages of development, but there is no substitute for experience and seeing events unfold in the market in real time.

Quotes by Paul Tudor Jones II

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

Paul Tudor Jones II is one of the most successful hedge fund managers. He has never suffered a losing year. His fund has returned 23% annualized gain since its inception in 1986. Paul Tudor is a momentum trader, who believes that price move and trend unfold only because of investors’ behavior.

Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over.

There is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it.

Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

Honor your stops!

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

In high volatile environment (now), you would often be shaken out of positions, only to see them reverse back in the desired direction. This is not a reason not to honor your stop losses. It is just a reminder that either your timing was inappropriate or that you don’t have an edge in the current market environment and therefore you shouldn’t participate until things change. There are times to buy, there are times to sell, there are times to do nothing.

In bear market, honoring your stop loss will save you form disaster. It will assist you to preserve capital, so you could live to trade another day. In bull market, it will free out money for better trading opportunities.

The only reason to hold a stock in your portfolio is if you would buy it at its current level and there aren’t any better opportunities for your money.

We are experiencing a rare event of market destruction that will lay down the foundations for the greatest wealth-building opportunities in our life time.

After the darkest hour of the night, the sun will rise again.

Five key for profitable trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

There are five key things that make all the difference in profitable trading:

Focus on a system with bigger wins than losses, big wins makes robustness a much easier thing to find. A 1:3 risk/return ratio makes it much easier to be profitable even with more losses than wins.

Trade in the direction of the trend, in my experience buying dips in a bull market and selling into strength in a bear market is a much easier process than calling tops and catching falling knives.

Trade small versus your buying power, most systems fail because traders simple trade too big causing losses and being wrong to set them back far too much. Small losses are easy to come back from a string of big losses is fatal.

Trade price action not opinions. Be quick to cut losses and patient to ride winners. Getting stuck on what you think should happen could be fatal when the market disagrees with you.

Your goal as a trader is to find an edge over the 90% of traders that lose money, once you have that edge the more you trade the right signals the better chance you have of being profitable. Before you have an edge the volume of trades work against you as your luck runs out. 

Quotes by Paul Tudor Jones II

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

Paul Tudor Jones II is one of the most successful hedge fund managers. He has never suffered a losing year. His fund has returned 23% annualized gain since its inception in 1986. Paul Tudor is a momentum trader, who believes that price move and trend unfold only because of investors’ behavior.

Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it.

I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over.

There is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it.

Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

Forecasting the Market

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Amateurs attempt to make a forecast while professionals manage information to make decisions based on probabilities. Dr. Alexander Elder compares this to a Doctor that received a patient with a knife stabbed in his chest. The family will ask, “will he survive?” and “when can he go home?” But the Doctor is not forecasting, he must prevent the patient from dying, remove the knife, saturate the organs and carefully watch for an infection. He monitors the health trend of the patient and takes measures to prevent any complications. He is managing, not forecasting. To profit in trading you do not need to forecast the future, you need to derive from the market whether the bulls or bears are in control. You need to practice money management techniques for long term survival.

You trade against the sharpest mind in the ocean-like markets. Mental discipline is an undivided part of trading. Please remember the following points:

Understand you are in the market for the long term, that you want to be a trader in even 20 years from now

Develop your trading strategy, either technical or fundamental analysis. If “x” happens then “y “is therefore likely to take place. You may need different tools for trading a bull or a bear market

Develop a money management plan, with the first goal being long term survival. Secondary goal is steady money growth and third goal would be high profits. Successful traders do not concentrate on the profit itself but maintaining successful trades regardless of the earned amount.

Winners feel, think and act different than losers. Look inside yourself, eliminate the illusions and change the way you have been thinking and acting. Changing is hard but could pave the way to becoming a successful trader.

50 Trading Rules

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Don’t take the market home.
5. Continually set higher trading goals.
6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Successful traders have a well-scheduled planned time for studying the markets.
9. Successful traders isolate themselves from the opinions of others.
10. Continually strive for patience, perseverance, determination, and rational action.
11. Limit your losses – use stops!
12. Never cancel a stop loss order after you have placed it!
13. Place the stop at the time you make your trade.
14. Never get into the market because you are anxious because of waiting.
15. Avoid getting in or out of the market too often.
16. Losses make the trader studious – not profits. Take advantage of every loss to improve your knowledge of market action.
17. The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success.
18. Always discipline yourself by following a pre-determined set of rules.
19. Remember that a bear market will give back in one month what a bull market has taken three months to build.
20. Don’t ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point.
21. You must have a program, you must know your program, and you must follow your program.
22. Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.
23. Split your profits right down the middle and never risk more than 50% of them again in the market.
24. The key to successful trading is knowing yourself and your stress point. (more…)

Lessons From John Templeton

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. “I never ask if the market is going to go up or down, because I don’t know, and besides it doesn’t matter. I search nation after nation for stocks, asking: Where is the one that is lowest priced in relation to what I believe its worth?” Like every other great investor in this series of blog posts John did do not make bets based on macroeconomic predictions. What some talking head may say about markets as a whole going up or down was simply not relevant in his investing.  John focused on companies and not macro markets. He was a staunch value investor who once said: “The best book ever written [was Security Analysis by Benjamin Graham].

 2. “If you want to have a better performance than the crowd, you must do things differently from the crowd.  I’ve found my results for investment clients were far better here [in the Bahamas] than when I had my office in 30 Rockefeller Plaza.  When you’re in Manhattan, it’s much more difficult to go opposite the crowd.”  The mathematics of investing dictate that investing with the crowd means you will earn zero alpha, because the crowd is the market.  You must sometimes be willing to take a position that is different from the crowd and be right about that position, to earn alpha. John put it this way: “If you buy the same securities everyone else is buying, you will have the same results as everyone else.” 

 3. “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.  Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.  People are always asking me: where is the outlook good, but that’s the wrong question…. The right question is: Where is the outlook the most miserable? For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity.”   To be able to sell when people are most pessimistic requires courage.  Being courageous is easier if you are making bets with “house money.” Making bets with the rent money is always unwise.  Templeton believed problems create opportunity. For example, it was on the day that Germany invaded Poland that he saw one of his best buying opportunities since prices were so low and values so high.  Simply telling his broker that day to buy every stock selling under $1 yielded a 4X return for John.  (more…)

Go to top