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Trade like a cheetah

  
  Education
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cheetahI read a quote about trading a long time ago that went something like: “Trading consists of extended stretches of intolerable boredom interspersed with moments of sheer terror.”

No terror for me today but I felt like one of my favorite animals – the cheetah. Just sit with orders in the market wait for price to come  so you can pounce on it.

Most people only pay attention to the speed of the cheetah because that part is exciting. But that part only lasts a few seconds.

What they don’t pay attention to is the fact that the cheetah spends the majority of its hunting time lying in wait and silently stalking its prey – “intolerable boredom.”

Waiting, and waiting, and waiting some more for the right situation to present itself.

Yes, that part is boring, but it’s also the most important part. It wouldn’t matter how fast the cat was if it just ran around without a plan. (more…)

Bull Markets Roll, Bear Markets Spike

  
  Education
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bullbear-ASRThere is an old trader’s saying that “bull markets roll, but bear markets spike.” This comes from the characteristic nature of the price action.

When a market is in bull mode, the majority of participants are happy and content (as the vast majority of investors are “long only”). The bull market thus “rolls” along, like undulating waves of grain, as more bullish investment capital flows into the market and positions are added to.

When a market is in bear mode, however, the majority of participants are annoyed or upset (because, again, those willing to go short are relatively few, while all the world is comfortable being long). The result is much more of a rough, jagged, against-the-grain type profile, in which extended declines are interspersed with surprisingly vicious rallies of short duration.

These mini-rallies are made even more vicious by the forced activity of “short covering,” in which bearish traders caught napping get “squeezed” out of their positions by the fighting spirit of the bulls.

Lying in wait at the top of a salmon-rich waterfall, then, is akin to waiting for that “spike” to occur before putting out a new bearish line. How do you identify such an occurrence? Simple:

  • Wait for your intended market to confirm a new downtrend (or break key support).
  • Wait for a countertrend rally – one that takes prices higher, but does not “clear” the bearish trend.
  • Enter upon reasonable evidence that the countertrend rally (or spike) has run its course.
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