Adapting to a bear market trading environment
The stock market is not a place where for someone to win, another has to lose. It is a place ruled by cycles - periods when almost everyone can make a lot of money are eventually followed by periods when almost everyone loses money. They say that both bulls and bears lose money in a bear market. Some bulls because they stubbornly hold onto long-term positions and when they experience a 50% drawdown, they panic and sell at the lows. Other bulls because they think that every rip is a sign of a bottom only to get caught into a trap.The bears lose because they overstay their welcome in short positions and get wiped out during the epic 20-50% rallies that only happen under a declining 200-day moving average.
Surviving a bear market requires realization that what made you money in a bull market is likely to harm you now. Thriving in a bear market calls for nimbleness and understanding that many obvious breakouts and breakdowns are likely to shake you out before they make you money, most clear uptrends and downtrends last only a few days before they are interrupted by a violent mean-reversion.
Here are some of the ideas and comments I shared with subscribers last week: