Are you trading stocks and shares and are you a profitable trader?
Having always been in the stock market where I have a trading seat in the broker's office, I am in a privileged position to observe traders and punters who flock to the trading room daily. There was a lady, somewhere in her sixties who would be sitting in the same position daily in the trading room, always oblivious to the surroundings and people around her, lost in observing and studying the stock market price movements and charts on the trading screen.
Over the years, while many traders and punters would come and go, many after losing their fortunes, Madam Foong as I would learnt was her name, would always be around. Grandma Foong, as she was later affectionately called, was obviously a very profitable trader.
One day, I plucked enough courage to ask her how what was the secret of her success.
"Sonny," she said, " I only trade with the trend and I punt on the counter-trends!".
What a revelation!
The secret of her success, she explained further, was to poise herself for the best trades whenever there was a confirmed trend. By observing the price movements daily, she would be able to determine the extent of the prospective trend- a skill that she has picked up from experience, similar to studying the "tape".
"Trading the trends isn't a daily thing," Grandma Foong explained. " I only trade the trends 30% of the time, because that's what the market do- the stocks trend only 30% of the time".
What about those "anti-trend" stocks?
" Since most of the stocks trend 30-% of the time, the rest of the time the stocks oscillate between a high and a low, and you can trade these smaller anti-trends. "
"You mean, you trade those smaller periods of times when a stock is moving within a range?", I asked.
" Yes, these are the times when if you observe carefully, the main trend of the stock is up, so when the price falls, you will want to buy on the low against the main trend, and when it moves up, you will want to sell at the high of that minor trend up, against the main trend", Grandma Foong replied.
" But go, watch the prices like a hawk, these anti-trends are minor, you are basically there for a very short while, even day trading them, most of the time."
With those words, Grandma Foong gave a hurried excuse, and went out the door.
Here was the secret of a profitable trader. Trade with the major trends 30% of the time and trade the anti-trends ( or range trade ) the rest of the time, but be very fast with these minor oscillations.
In Part #2 of this article, I will report how Grandma Foong actually picked these main trends and anti-trends.
Friday, May 2, 2008
How To Trade Profitably In A Bear Market
Trading in a bull market is easier than trading in a bear market. Many traders find they can make money trading in bullish markets, but when there is a major correction underway or when the market is bearish, they literally freeze and are unable to trade successfully or find profits in their trading.
First,when a market has collapsed, it is important to accept the fact that the market trend has changed from bullish to bearish. It is human nature to find scapegoats or to find a “reason” or to rationalise away the fact that the market trend has changed. But unless the trader accepts the fact that he is solely responsible to trade his way out of a bearish market, he will find his position untenable and discover losses that add up daily as the market bearish sentiments continue. It does not pay to refuse the responsibility of your own trading action and put the blame on your broker or your friend who has given you the "tips" that led to your losses.
If you are faced with losses from a sudden collapse in prices, accept that it is your responsibility to now institute action to get out of this situation with profits.
Secondly, while in bullish markets it is easy to trade by just buying stocks that are in initial outbreaks and just holding them and coming back again after a few days to reap profits, you cannot do the same during bearish markets.
In bullish markets, you trade with the trend, and as long as the trend is up, you stand to make easy profits. On the contrary, in bearish markets, the market goes into consolidation, and trends are “shorter” in duration or the market will go into a sideways direction, with prices oscillating between ranges. During bearish markets, we are more biased towards range trading rather than trend trading. So if you do not know how to change from using trend trading to range trading, you can be caught with short term trend changes and suffer whipsaws and lose money trend trading during bearish markets.
Dealing with traders who have gone through a series of major market corrections since 1987 has led me to conclude that there is no room for lackadaisical trading during bearish markets. The margin of error for a trading signal is much lower when trading in a bearish market. I have seen traders who are able to quickly change or adapt from longer trend trading to trading shorter swings in the market or range trading to be able to make money from their trades. In bearish markets, they are contented with smaller profits, but trading more often and in higher volumes. To aid in their margin of profits, they are able to negotiate the lowest brokerage terms possible with their brokers or to use discounted online trading platforms.
In bearish markets, the trader who range trade will be the one who is best positioned to take advantage of the shorter and faster rebounds that occur as stocks get oversold and retrace upwards. Accepting personal responsibility and adapting to range trading will improve his chances to make money during bearish markets.
First,when a market has collapsed, it is important to accept the fact that the market trend has changed from bullish to bearish. It is human nature to find scapegoats or to find a “reason” or to rationalise away the fact that the market trend has changed. But unless the trader accepts the fact that he is solely responsible to trade his way out of a bearish market, he will find his position untenable and discover losses that add up daily as the market bearish sentiments continue. It does not pay to refuse the responsibility of your own trading action and put the blame on your broker or your friend who has given you the "tips" that led to your losses.
If you are faced with losses from a sudden collapse in prices, accept that it is your responsibility to now institute action to get out of this situation with profits.
Secondly, while in bullish markets it is easy to trade by just buying stocks that are in initial outbreaks and just holding them and coming back again after a few days to reap profits, you cannot do the same during bearish markets.
In bullish markets, you trade with the trend, and as long as the trend is up, you stand to make easy profits. On the contrary, in bearish markets, the market goes into consolidation, and trends are “shorter” in duration or the market will go into a sideways direction, with prices oscillating between ranges. During bearish markets, we are more biased towards range trading rather than trend trading. So if you do not know how to change from using trend trading to range trading, you can be caught with short term trend changes and suffer whipsaws and lose money trend trading during bearish markets.
Dealing with traders who have gone through a series of major market corrections since 1987 has led me to conclude that there is no room for lackadaisical trading during bearish markets. The margin of error for a trading signal is much lower when trading in a bearish market. I have seen traders who are able to quickly change or adapt from longer trend trading to trading shorter swings in the market or range trading to be able to make money from their trades. In bearish markets, they are contented with smaller profits, but trading more often and in higher volumes. To aid in their margin of profits, they are able to negotiate the lowest brokerage terms possible with their brokers or to use discounted online trading platforms.
In bearish markets, the trader who range trade will be the one who is best positioned to take advantage of the shorter and faster rebounds that occur as stocks get oversold and retrace upwards. Accepting personal responsibility and adapting to range trading will improve his chances to make money during bearish markets.
Subscribe to:
Posts (Atom)