Discussion of Hot Topic from Vadym today...
<Threei> I would like to talk today about what we are going through, how to handle it, how to approach it, what to expect, what to get prepared for etc. You heard this famous ancient Chinesse damnation:
"Wish you to live during interesting times" (translation might
be not exact).
Well, we do live at such a time. What happens in markets during 2000-2001, will be regarded in line with 1929.
Scale wise I mean. record $3.4 [10:12] <Anchor> trillion in Nasdaq wealth has been destroyed quote from the post earlier. Changes of such a scale are very demanding and usually put out of business plenty of market participants.
What do we do during such an events? First of all let's realize: market rewards us in one of two forms:
1. Profit
2. Experience
Experience gathered during 2000-2001 is unique and invaluable. Trader that went through all this has learned that much that no book, no teacher could give him anything even close. So, first practical advise for these times while they last:
Learn.
Learn to read emotions on the tape. Or on the chart, doesn't matter. This is an extreme situation, and people's manner to act in extreme situations is what we need
to learn to see in order to play these emotions. If we can't get enough money of this kind of market we certainly can get plenty of invaluable knowledge. Second aspect I would like to discuss today:
"OK, when does it end???"
Here is my point of view. You all have been I am sure through situation where you missed your stop, hesitated to take loss bigger than original stop, decided to hold for a while, stock went even futher against you and at some moment pain has became unbearable. That's when you sell. Incidentally, that's when stock turns!
Familiar?
This is broad principle. It could be applied to many of market (and not only market) events. Those who give up trying to read the market are going to be those who eventually look at market rocketing or just getting active enough to trade it easy. Those who waited for this event in cold blood, learning everything they could reading emotions running high on the tape, preserving their capital, laying low till moment comes, those will be rewarded greatly for all these tortures. In order to be alive and ready when right moment comes, do NOT be aggressive today. When I say today, I mean not just today, March 12 :) This is not a market to play the games with.
It's cruel and relentless. $200 stocks trade at 10 or under and can't bounce.
Some went belly up, proving that "value" is not in stock price. There is old rule:
Do not buy the price alone. It was proven during this market fall. what does it mean, to not be aggressive?
1. Decrease your market exposure shares size wise. If your usual lot is 1000 shares, you might want to go down to
500. Don't feel like it hurts your pride. Who needs dead lion?
2. Decrease you market exposure time wise. Scalping is defensive style, trade defensive. Take scalps as stock slows down or weakens, or, if you feel strongly about futher movement, at least lighten up your position by selling 1/2 and bring the stop on remaining shares to breakeven.
3. Tighten your stops. Do not play this game "just how much lower it can go". It can go as low as noone could even imagine. Who could imagine CMRC at 10? or COMS at 7?
etc etc After all, who could imagine NASDAQ under 2000...
4. Do not chase. No chasing whatsoever. You get in right above support or you wave the train bye bye. You just can't afford to trade having no cushion.
5. (this one might seem a bit strange but those who are with us for a while won't be surprised) Do not try to find market bottom. This is losers game. Let suicidal types to do it. No one knows where and when market bottoms. For all I know, it could do it above 3000 or it can do it now at 1500. Or we might be seeing the bottom right now.
No one knows. Of course when the bottom is put, it is going to be so obvious and plenty of gurus will be popping up all over the place touting their predictions. In fact many of them already call the bottom every day so that when THE DAY comes, they could quote this very day gently forgetting all other days... Our game is not to find the bottom, our game is to find the day (or part of the day if you will)when market becomes READABLE. Today's market is extremely tough to read because of extreme emotions,
because of fear that keeps money on sideline and makes trading illiquid, so stocks jump like crazy antelopes, changing spread, squeezing short, killing longs.
Or, they just sit on their butts doing nothing for hours
as no side is brave enough to take on the action. Don't try to predict market movements looking at economical
data. Won't work. Market is discounting machine. It will react to economical events way before events come. You can see todays events: what caused morning selloff? what caused this runup? did US economy just heated up one hour ago?
Emotions run the market, we read the emotions, we trade on this reading. No clear read - no trade. There is clear read - we put on the trade BUT we never forget that market knows better and market is always right. WE got a read, stock hasn't acted accordingly to our read - it spells STOP.
So, let's be patient - it will be rewarded greatly. let's be cold blooded - it will save us from bad decisions. I don't know what to add, except: Trade what you see... not what you think. |
