Rules for Bear Market

1. Good news in a bear market is like smoke in the breeze (i.e., soon dispersed). Don’t buy into upgrades or analyst recommendations. Analyst “upgrades” or recommendations can kill you.Every person reading this has access to some kind of trading platform, trading tools or systems that afford instant access to the financial markets. Good news like upgrades in bear markets typically has about five minutes of fame.


2. Bear markets are not a time to learn how to “day trade” in an effort to recoup losses (no matter how many times you hear that “this is a traders’ market”).


3. Accumulation days (there may be three or more in a row) are shorting opportunities, but resist being aggressive until the S&P 500 shows a 3- and 5-day moving average bearish cross. (Remember that it’s 50% market, 25% sector and 25% stock as far as direction, but some could argue in markets it’s 75% index, 15% sector and 10% stock.)


4. Chart patterns (unlike ice cream) come in just two flavors: continuations and reversals. Reversal patterns mostly form in weak trends. If the trend that the market or stock you are watching has been strong, then chances are that any pause is just a consolidation before the next leg down.


5. There is no such thing as “safe sectors.” Sure, each bear market brings sector rotation. But make sure if you are playing this game that you don’t have the flexibility of wood. And when the music stops, quickly find a chair!

That is, you must keep a flexible mindset so that you are able to change with the markets. The best traders are those who are nimble and approach the markets without bias.


6. Your stop-losses are YOUR stop-losses. The pain of being down 8% in a bull market is no different than being 8% wrong in a bear. If your risk tolerance requires you stopping out at 8%, then be consistent in any market you trade, but trade “with the primary trend.”

It takes greater emotional balance to trade a bear than a bull. So, always manage your risk — just remember that, in the markets, your money is always at risk.

Great traders manage emotions and risk. This makes them great. YOU know your risk tolerance and YOU control what happens between the “keyboard and chair.”


7. Bear markets are generally slow-moving affairs. However, stocks in bear markets can move much faster than you think (hence the reason that volatility rises drastically). But the “time” we spend in a bear is what everyone needs to keep in perspective. Bear markets last much longer than most are willing to wait. (more…)


Fear has a way of making us focus on unfavorable headlines and price action. Fear impacts our ability to evaluate alternatives as it clouds objectivity. Fear is why profits are taken too quickly. Fear is a four letter word that comes in many flavors.

Fear of losing: Nobody wants to lose—doesn’t matter if it’s a spelling bee in the 5th grade or a newly entered long position in a stock that just broke through resistance. Losing sucks. Losing reminds us that perhaps we aren’t as good as we thought (hoped).

Fear of being wrong: Remember that time you blurted out the wrong answer and everyone laughed? Still sticks with you after all these years and screws with your mind. That new short position you just took is about to get squeezed—or at least that’s the thought running through your mind, right?

Fear of missing out: This is where we can really let our imperfections shine as we buy at the top and sell at the bottom. But hey, we didn’t miss out on the action!  Succumbing to the fear of missing a potential move and jumping in mid-stream trumps any good trading plan or preparation. This is a lack of self-discipline and causes much of the psychological damage seen in the markets.

Fear impedes our ability to be creative. Fear suffocates, debilitates, and causes many to wonder “what if…” rather than “why not…” Hope is used as a remedy by the fearful, but often gets smashed and is soon replaced with self-help books, talk therapy and medication.

Courage is what’s needed—the courage to fail.  With proper planning, risk can be managed and success can be found. Having the courage to step off the curb lends itself nicely to creating who you are as a market participant. Define your risk, adhere to your trading plan and fear becomes a fleeting thought rather than a debilitating one.

It’s OK to lose.  Just make sure that it’s within your defined risk/reward and move on.

It’s OK to be wrong. What’s not OK is to be stubborn and stick with a losing

It’s OK to miss out. There are thousands of other names out there, find your trade.

If you want to become a better trader you need to realize that fear cannot be eliminated. It can, however, be used as an edge in your market participation. For me, one of my favorite times to sell premium is after a large, quick move—puts for fear and calls for greed.

“To conquer fear is the beginning of wisdom.” ~ Bertrand Russell

Barista technique and Trading

I start my day with a cup of coffee, everyday. A cup of freshly ground, and brew Espresso or Long Black is essential. I am not a coffee expert, but I am a coffee lover. I have my grinder and Espresso machine at home. Barista technique breaks down into three time scales and skill levels:

The first is the minute or so spent grinding and making the shot. The key here is acquiring the skills to make shots consistently. One should be able to turn out four or five in a row with virtually the same timing, volume, color, crema and taste. This skill is a physical thing, that is, it’s a matter of training and practice rather than learning.

The second is the time spent carefully tasting an espresso or series of espressos, identifying the flavor balance and defects, and making adjustments to ones pull or machines to correct them. The “dialing-in” process for a new blend usually requires a series of shots to get a satisfactory result, and can proceed over several days to fine tune it. To do this well, one needs to have experience in tasting and analyzing good espresso. One also needs to know how changes in extraction variables and machine settings affect the espresso’s taste.

The third is acquiring experience and informed preferences with a wide range of coffees, blends, espresso equipment, and alternative techniques. If you or someone you’re serving wants an espresso with a specific pallette of flavors; you will know how to provide it. Home roasting and blending helps in this. So does visiting good cafés and roasteries, and talking with the knowledgeable people there.

I see a lot of similarities to trading. What do you think? Start making coffee…

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