Bear markets can be your best friend or your worst enemy.
If you are a versatile and adaptable trader, you can make life-changing money from these conditions.
If you do any of the 3 mistakes we discuss below, you will get CRUSHED.
Read this carefully so it doesn’t happen to you
Veteran trader Kunal Desai will break down 3 mistakes you should avoid at all costs in the current market conditions:
Mistake #1: Counter-Trend Trading
So many new traders get burnt trying to trade counter-trend setups aggressively. A counter-trend setup is just a setup that is against the overall macro trend of the stock. The way to best identify the macro trend of a stock (meaning if it is in an uptrend or a downtrend) is by zooming out and looking at higher time frames, like the daily chart.
If the daily chart is in a major downtrend, and below major moving averages, you don’t really want to be trying to long that stock to the upside. You should be trying to take the easy trade and look to ride the trend by shorting the stock to the downside. Just because a stock looks cheap and you have FOMO thinking this might be the bottom and you may miss a bounce opportunity, doesn’t mean it is a good buy. Trade alongside the trend of the stock, and watch your win percentage and confidence fly.
Bear markets can last for a very long time. So trying to catch a falling knife every day can really damage your account. If you are looking to long a stock that is in a downtrend, or short a stock that is in an uptrend, wait for a clear trend reversal on a higher time frame and then take your entry. You will want to wait for things like high lows (if you are looking to long a stock) or lower highs (if you are looking to short a stock), and the reclaim of the major key moving averages you are watching on the higher time frames.
Counter trend trading is one of the biggest detriments to new traders because it can be extremely hard if you are inexperienced to time trend changes perfectly. Don’t fight the trend!
Mistake #2: Oversizing
Just like we talked about earlier, new traders always come into the game read to make a ton of money… FAST. With that mentality, they end up going way too hard on their sizing trying to hit all of their financial goals at once, and ultimately blow up or lose a significant amount of money as a result. This can happen even faster in a bear market where volatility is even higher than normal.
You have to start small. Oversizing from the start while you are inexperienced, and not worrying about proper risk-to-reward ratios and parameters will put you in some really ugly positions. Don’t try to become a pro in one day. You have to EARN the right to trade a lot of size and put enough risk on to make $1000-$2000 per trade.
Drop your ego, start small, and scale up as you show consistency.
Miskate #3: Not Knowing The Market Conditions
Right now, in these market conditions, you CANNOT buy breakouts. If you are unaware that we are in a bearish market, and you are trying to buy breakouts all day long or are looking for long opportunities, you will get burned all day long.
A lot of new traders just look at individual stocks or the hot stocks for the day, and disregard the overall market. In doing so, they really don’t know what direction the market is in, where the money is flowing, and how that overall direction and bearish or bullish sentiment in the market can affect the individual stock they are trading.
You have to analyze $SPY, $QQQ, $IWM, and other major indices every day to see what type of market we are in. If the major indices are all gapping down aggressively for the day, you may want to think again about buying breakout opportunities.
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