- When you are confused and don’t know what to do, do nothing.
- There are no set ups on your watch list, then don’t trade.
- You are a trend trader and there is no trend to trade.
- The market is extremely volatile due to headline risk.
- You want to make an option trade but the options are illiquid with a huge bid ask spread.
- If you are trying to trade supply and demand but the government keeps interfering with your market, pick a different market.
- Your stock reports earnings the next day and you expect a powerful move but it could easily go either way, wait until after earnings to trade.
- You are a momentum trader but their is not momentum, then wait.
- You play the long side only and the market is in a correction or a bear market, wait for a new trend to the upside.
- If you are not at your best mentally and emotionally then don’t trade until you are.
Archives of “bear market” tag
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For Stocks, September May Be the Cruelest Month
September is fewer than three weeks away. Feeling nervous? Maybe you should be. For investors, the period between Labor Day and Halloween is proving an annual fright show. And no one knows why.
It was, of course, in September last year that Lehman collapsed and everything fell apart. But then it was also September-October 2002 that the last bear market plunged to its lows.
The 1998 financial crisis? It began late August, and rolled on for two months
The famous crash of 1987 came in October. But most people have forgotten that the market actually started sliding downhill in late August. (more…)
Time Tested Rules (Part 1)
Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
Take a trading break. A break will give you a detached view of the market and a fresh look at yourself and the way you want to trade for the next several weeks.
It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments “ride”. Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly—hold losses to a minimum.
People who buy headlines eventually end up selling newspapers. (more…)
DON’T FIGHT THE MARKET
Fighting the market is not good for two reasons. First, we lose money. How much we lose depends on how well we are managing our money and controlling our risk. Second, fighting the market affects our judgment, and causes us to try to confirm that our judgment is correct. Some very high level market analyst will persist in fighting a trend so that we will eventually be proved to be correct. They figure that if we persist long enough, no matter how long it takes, we will eventually be right. In some cases the “technical price” level is so far away that by the time the forecast is negated, the inventor following the advice will have lost a large sum and missed a fine opportunity on the other side of the forecast!
By analogy, there is a reason for leaving your car downstream, launching your canoe upstream, and paddling downstream. It is much easier and eminently more fun to go with the flow and paddle downstream. We could do the opposite and paddle upstream, eventually we may even get to our destination, but the cost would be substantial. It would take much more time, more physical and emotional stamina, and we would be constantly fighting the current. Reaching the goal would not be worth the cost.
From a system trading point of view, it is seen from a different set of constraints. The technical or priced based strategy that gets you into a trade also has a priced based signal that says “the strategy is wrong get out ” or “the strategy is wrong reverse your positions”. The problem with relaying on price to tell you that you’re wrong is that the market does not care. So like the unmoved market analyst that says “it’s only a bear market rally”, at some point money management, risk manage has to come into play, It is a necessary evil.
The coming economic crisis in China
By Jim Jubak
I think investors are worried about the wrong kind of crisis in China.
Worry seems to focus on the possibility of an asset bubble and the chance that it will burst sometime in the next two to three months.
I’m more concerned about a slide into a crisis that will be an extension of the Great Recession. That slide could begin, I estimate, sometime in the next 12 to 18 months.
I understand the worry about the possibility of an asset bubble in China. After all, we’ve just been through two horrible asset bubbles — and busts — in the U.S. and global financial markets. And a Chinese bubble is a distinct possibility, one that should certainly figure into your investing strategy.
But China’s economy and political system are so different from ours in the U.S. and those in the rest of the developed world — and its relationship to the global financial market so unique — that I don’t think we’re headed toward any kind of replay of March 2000 or October 2007.
A bigger worry is a long-term slide into a lower-growth or no-growth world in which nations strive to beggar their neighbors and all portfolios slump. As crises go, it’s very different but ultimately just as painful for investors as the asset bubbles that draw all our attention now.
To paraphrase Leo Tolstoy in “Anna Karenina“: Happy bull markets are all alike; every unhappy bear market is unhappy in its own way.
When should traders be in or out of the market?
There are times when traders should NOT be in the market. There are other times when the market is rocking and traders should get aggressive. How can you tell the difference? Here are 5 helpful tips.
1) Accumulation and Distribution Days: When should traders go to cash? Follow the big boys! The big institutions control the market, so pay attention to their actions by tracking accumulation anddistribution days. When institutional selling builds up over a short period of time (2-4 weeks) AND leading stocks start to break down, that is a great sign to start raising cash. Why? Because 4 out of 5 stocks move in the general direction of the market. I don’t care how good the company is, when the market’s in a downtrend, you don’t want to fight it.
2) Uptrends and Downtrends: Don’t get caught up with the terms Bull and Bear market. Just recognize if we are in an uptrend or a downtrend. For example, use the 50-day moving average on the NASDAQ Composite as a general indicator to be in or out of the market. Above the line usually means we’re in an uptrend and it’s a green light to be in stocks…below the line, downtrend and red light.
3) Scale In: When conditions start to improve, SLOWLY scale back in. There’s no reason to rush. Take a few positions and test the waters. If the rally is for real, there will be PLENTY OF TIME to make money. If you are wrong, at least you can get out quick with minimal damage and protect your portfolio. Think Defense First!
4) Buy the Strongest Earnings & Sales Growth: When markets are in a confirmed uptrend, what stocks should you buy? Be in the best! Don’t settle for low rate stocks. Look for companies that have strong earnings and sales growth. Why be in dead-money stocks with little growth potential? We’re in this to make money, right? So be in stocks that have a higher probability of moving up!
5) Fundamentals AND Technicals: Why does it only have to be one or the other? Why not USE BOTH! We want as many factors as possible in our favor when trading the market. Therefore, start with strong fundamental companies AND combine the proper technical timing to identify ideal entry points to effect your best risk vs reward trades. (more…)
What is Luck & What is Skill in Trading?
Luck is picking the right stock and riding it up for great profits, skill is knowing when to get out and lock in profits.
Luck is returning 20% in one month, skill is returning over 20% a year for 5 straight years.
Luck is making money in a bull market, skill is making money in a bear market.
Luck is making money when the market matches your perma bull or perma bear style, skill is making money in both bull and bear markets.
Luck is picking one monster stock, skill is picking three monster stocks back to back.
Luck is having one big bet pay off for huge profits, skill is surviving 200 straight trades and not blowing up your account.
Luck is surviving the market while not knowing what you are doing, skill is acquired after you have done your homework.
So, do you have skills as a trader or have you just been lucky? So far………
Book Review :Elder, The New Sell & Sell Short
Most traders have read Alexander Elder’s Trading for a Living, originally published in 1993. Elder has, of course, written other popular books such as Come into My Trading Room (2002) and Entries and Exits (2006). His latest work, The New Sell & Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines (Wiley, 2011) is an expanded second edition of his 2008 book. It comes with a built-in study guide: three sets of questions and answers. Although it is a paperback, the charts and graphs are printed in color and the stock is of high quality.
The first part of the book covers Elder’s signature contributions to the trading literature: psychology, risk management, and record-keeping. It is brief because we’ve been there before, but Elder does describe some new ways to keep records—an ongoing project because he believes that “the single most important factor in your success or failure is the quality of your records.” (p. 341)
Part two tackles the all-important question of how to exit a (long) trade. Elder offers three alternative scenarios: sell at a target above the market, be prepared to sell below the market using a protective stop, and “sell before the stock hits either a target or a stop—because market conditions have changed and you no longer want to hold it.” (p. 59)
Elder then moves on to shorting stocks, futures, and forex; he also has a section on writing options. Finally, he points out some lessons of the 2007-2009 bear market. (more…)
You Might be a Trend Following Trader if…..
“Trend followers use reactive technical analysis. Instead of trying to predict a market direction, their strategy is to react to the market’s movements whenever they occur. This enables them to focus on the market’s actual moves and not get emotionally involved with trying to predict direction or duration.” -Michael Covel/ Trend Following
You Might be a Trend Following Trader if…..
- …you love buying break outs above resistance and new all time highs.
- …big trends make you happy not angry.
- …you do not trade the concept of something being overbought you just use a trailing stop.
- …your trading decisions are based on what is happening now, not your opinions, your fears of what will happen, or your hopes of what will happen later.
- …you risk a little capital over and over again to make a lot of capital eventually.
- …you are great at letting your winners run.
- …trend followers don’t need a story they follow actual price action.
- …you look for longs in a bull market and shorts in a bear market you are likely a trend follower.
- …higher highs and higher lows are one of your best indicators to go long.
Linda Bradford Raschke – 50 Time Tested Classic Stock Trading Rules
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. (more…)