Yesterday, we examined a number of the major market panics & we said that the condition traders find themselves when a market panic hits has largely to do with the thinking that go them there.
*If you missed yesterday’s piece, click here to grab the whitepaper*
Initially, we can see two conditions that most people fall into:
- Permabull unexpectedly incurs substantial losses during market panic
- Most strategies are actually just long the market
- This description comes from the observation that most strategies are never below 80% long in the market
- Returns actually just go up and down with the stock market.
- Permabear commonly thought of as a contrarian
- Can make substantial returns in a short period of time during a panic
- Permabears are often wrong for years
- Many will not actually make it to the ultimate reward
- Continues to compound mistakes against the unfolding reality
The point of this comparison is not to say one is better than the other. We want to be in neither of these camps because, in fact, they are really one in the same. If the permabear described here seems laughable or made up, consider how plausible it is to find someone who is long a losing stock for years, waiting for the world to wake up and see the value of the company.
Fighting a market trend for years is not a rational process
You’ll find in the case study download that there was the possibility to be in an entirely separate category from the permabull/bear.
- Traders have the ability to take the trade up with the market, and get out when the market turns around
- Traders also have the ability to turn their position around with the market & turn crisis into opportunity
- Traders can compress time to turn volatility into even more trading opportunities
We will get into each of these as we progress in the series. You may find that some of these ideas speak to you, and other ideas may not appeal to you. That is fine. That is why this series is presented as a path. If you can incorporate 80% of what covered here, you will put yourself in an outstanding position to deal with good and bad market conditions.