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Rules for Bear Market

  
  Education
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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…)

20 Trading Rules for your weekend

  
  Education
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1.        KNOW THYSELF
What kind of trading style fits your personality…Trend following? Day Trading? Buy and hold (please NO)? Next, what do you want to accomplish with your trading…Monthly Income? Long-Term Growth? Risk Aversion? And finally, you must have a grip on your emotions, because you will experience failure and success in trading and you need to know how you will react to both.
 
2.        KEEP IT SIMPLE
You should be able to describe each trading strategy in your war chest on a 3×5 index card.  There are so many different trading tools and indicators out there that it is easy to make trading and investing harder than it is. Find a few technical and/or fundamental indicators that you can apply to your trading, and master them.
 
3.        DIVERSIFY 
Specialize in a few different trading strategies and then spread your risk out across multiple asset classes using those trading strategies. Make sure all of your trades are not dependent on the same sector, commodity, industry, or idea. 
 
4.        LOSERS AVERAGE LOSERS
Only losers add to losing positions. If a trade is going against you, move on and find another trade. It’s not about pride, it’s about profits.
 
5.       NEVER STOP LEARNING
 You must constantly make an investment in your trading education. Read books, go to seminars, or talk to other traders, because over time the traders that make a commitment to never stop learning will be the traders that stay in the game and are able to adjust their trading style to any market environment.   
 
6.        CREATE A TRADING PLAN
Having a trading plan creates discipline. Why are you making this trade? What’s your risk? What’s your reward? How much margin is required? What will you do if things get bad, or really good? These are questions you should be able to answer on every trade you execute.   
 
7.        BAD TRADE MOVE ON
I don’t care who you are, you are going to have bad trades. When you have a bad trade, take a break from trading, go to a movie, or kick the dog (once), but don’t sit around and pout.   It’s important that you move on and start planning how you are going to get it back. 
 
8.        TRADE WITH CONFIDENCE
Trust your research, feel confident in the time and energy you have put into your trading strategy and know that no matter what the market does in the short term, you have the ability to make money in the long term. 
 
9.        THE MARKET IS GOING…????
Nobody knows where the market is going and you don’t either.    So pick trading strategies that allow a little wiggle room in case you wake up one morning and the market doesn’t do exactly what you told it to. (See trade schools)
 
10.    DICSIPLINE
 This word sums up a long term trader. You must have the discipline to follow your systems and manage your emotions hour after hour, day after day, year after year. If you are undisciplined in other areas of your life, don’t be surprised if one day you break your trading rules. You must practice discipline 24 hours a day.  (more…)

Time – Space – Reality – Oneness – Markets

  
  Education
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What do the above all have in common? That’s right, “nonlinear” concepts!

It is interesting that one of the great minds of humanity, Albert Einstein spent his time on “nonlinear” concepts such as “time, space, reality, and oneness.” I find it more interesting that the interdependence of these “nonlinear” concepts is what makes a market tick as well.

As a trader, “timing” your trade within the “market” is based on “reality” in relation to the “oneness” of other traders and your outcome is determined by the “space” or movement of your position.

It is my opinion based on consulting with many traders that most traders incorrectly view the markets from purely a “linear” mindset and instead should view the markets from a “nonlinear” mindset as the markets are “nonlinear” themselves.  This is why rigid logical thinkers or “linear intellectuals” find trading the markets so frustrating.  Since they operate from their logical “linear” “beta” mind state, and become frustrated when market behavior does not do what it “should.” This is also why I feel that successful trading has to be both “art” & “science.”

Think about how you approach the markets and to what degree you are a “linear” vs. a “nonlinear” mindset. Also try and remember a trade or trading day where it seemed effortless and you just “let-go” and flowed with the market. In days like these, I’ll bet logical thinking was secondary to enjoying yourself, and selecting trades based on both your trading “tools” and your “intuition” which represents trading the markets as an “art” & “science.” Compare that to days when you where frustrated because the market did not do what it was suppose to based solely on logical assumptions.

Usually fear and greed are by products of logical thinking. Fear and greed are emotions and “nonlinear” in concept, but created by “linear” thinking. Isn’t it interesting that fear and greed are present in the markets and are “nonlinear” as well. Or is it because fear and greed are “nonlinear” and that they are present in the markets?

Maybe the key to a good trading system should be based on how to measure or determine “nonlinear” market events such as fear and greed. The purpose of this article is to have you look at the markets from a “nonlinear” point of view so that you can perhaps “see” market relationships that where invisible to you before.

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