I got this email today and I thought it was terrific. At the bottom was permission to share so here it is…..if someone wants to explain how to upload a video, I’ll try to make the video clickable Richard Moglen is a great follow not only on Twitter, but on YouTube, where he does great interviews with top traders, among other useful stuff. A Warning About Bear Markets from William O'Neil Richard Moglen May 8 We are currently 5 months into a 25% Deep Correction / Bear Market on the Nasdaq Composite. We are trending below all daily key moving averages on this Major Index. Additionally outside of cyclicals and energy names, there is little in terms of developing leadership. This type of environment, unless you are used to trading intraday or 1-3 day swings can be incredibly frustrating to traders as it feels like the breakouts and setups that had been working so well when the market was in an uptrend have suddenly lost their edge. However, it’s not that breakouts don’t work, it’s the overall market environment. At this stage, stocks have been and continue to see distribution from funds & institutions. Gap ups on earnings and other breakouts are opportunities for funds to sell into that liquidity. Given this, traders should recognize the shift and adapt accordingly O’Neil puts it simply “You absolutely do not buy breakouts during a bear market. Most of them will fail.” From How To Make Money In Stocks page 151: This warning is a clear reminder that the setups that work in uptrends do not have nearly the same effectiveness when the general market is trending below moving averages. How long this correction/bear market last’s no one knows. We could put in a bottom next week or see chop for months more. The key things to be on the lookout for: Leadership groups to develop & diverge from the market decline and show RS Follow Through Day’s on the Indexes Feedback on pilot trades to consistently be positive. Be patient and use this time constructively to work on your trading rules, do studies of setups, and otherwise work to build your trading foundation. Reading trading books is a great way to improve your process during this time. Here are my Top 20 recommendations: Trading Engineered The Best Trading Books for New Traders With the market in correction, I thought a great article topic would be 20 Key books for traders to read that would help build a foundation for proper trading. If you read one of these every two weeks this year, you will significantly build up your trading background, and learn many concepts that you can put into practice… Read more 3 months ago · 7 likes · 1 comment · Richard Moglen By taking step back now as the markets are not favorable you are preserving your financial capital as well as your confidence. The longer this bear market lasts the stronger the uptrend and the greater the opportunity will be on the other side. I particularly like Jim Roppel’s Rubber Band Analogy for market corrections: Richard Moglen ️ @RichardMoglen The Rubber Band Analogy - Market Corrections - @Upticken Full interview: youtu.be/r-GaO0AQMC4 February 24th 2022 39 Retweets205 Likes Stay optimistic! Be Ready! A new uptrend complete with the next batch of True Market Leaders could be just around the corner. I hope this article was helpful. If you did please go ahead and share it with others!
There is no significant difference between trading a bull market or bear market. When the market is dead, we will be worried. When the market is choppy, we wouldn't be pleased. Only members from eliteinvestor.com will be fearful of the bear.
Really; I find that risk control is much tougher when shorting. All I can lose buying a stock is my initial investment. My losses short are unlimited. I learned a valuable lesson when a stock I had shorted got bought out at a premium to the price it was trading at that was much higher than my stop.
I just don’t short. Maybe at some point in the future. But I’m not there right now. Other than maybe an occasional inverse etf. But I don’t like those either, they don’t track well on a time frame longer than a few days. I think right now for someone like me, a noob, My time is better spent studying charts, reading books, and maybe paper trading a bit to keep engaged.
I use to trade using Investors Business Daily website and definitely respect Mr ONeil's advice. But my bread & butter are shorts. Stop loss works just as efficiently with shorts just as it does with longs. Fortune favors the bold.
This is nothing new, CNBC daily say loudly and clearly, do not buy the breakouts, fade them instead. The deep declines maybe the time to get a little income/dividend paying etfs - very small! The problem is many people go all in cash to catch the bottom but then they miss the bottom. I am sure the ET traders are far above this feeble crowd but still. I am 95-percent in cash (my wife is 10-years younger and she still contributes [dollar cost average], she is a bit more exposed) but I like the covered calls of the broad indices idea as I am afraid to miss the bottom.
Looks like a great setup. I would have shorted the low of the previous BAR. NOT the absolute low, but the range of the BAR low. Mind you, I don't trade stocks below $50. But for NQ or ES that looks like gold. EDIT: It looks like a winner to me because the red BAR never topped the opening of the previous BAR. It went straight down. No idea what type momentum, but I would have jumped over bricks to trade that.
Do not short stocks by borrowing shares. Your risk to the upside, if it rallies strongly, for whatever reason is unlimited. Use put options if you wish to short stocks, indexes or ETFs. Your maximum risk (on a worst case scenario) is losing the cost of the premium you paid to buy the put option. Your maximum gain would be for the stock to go to zero. Huge price drops will drive put options prices much, much higher, to 100% and up. And if it keeps dropping in huge amounts, your profits will pile up.
You guys are really limiting your profit by not doing an occasionally short. Obviously the trick is picking the right stock at the right time. Witness the fact long-only funds are taking it up the poop chute at the moment.