Stock Trading in play book in Bear Market. Cash

It is extremely difficult to make money consistently during a bear market. However, I set out to educate myself and to learn all I could about trading and try to conquer the big bad bear. I had read a book on chart reading and technical investing writtn by the publisher of Investors Business Daily. It was full of great tips and insight that got my pumped up with confidence. After the weekend I set my plan into action certain that I would be making large gains. The first day didn't seem to work, then the second, third and fourth continue to post gains. I was applying my new found knowledge and even went back to read a few parts over to see what I was doing wrong. It was following the method to a T and went back the next week expecting to recoup the losses of the prior week. True to form the losses kept coming and I finally stopped out and started to think I guess this just isn't for me. I took a short break from educating myself and took a break from stocks. A short time later I went back and started on the charting book again to see how I could have missed the point or misunderstood the methods. I am sure you will all relate to some similar story in your own life. I looked toward the very end of the book and saw a chapter labeled as an appendix. I had never even thought about reading it because I assumed it was just another set of charts that expanded on what I had read. Most of the time I have seen these additions as minor changes or just more data that would have taken too many pages of a chapter. Well this was different. I could not believe my eyes. In large bold type on the first page it said
NONE OF THIS INFORMATION APPLIES IN A BEAR MARKET
followed by words of advice that staying in cash was the only really choice because the capital could eventually be put back to work making significant gains when the bull market returned.
I am not sure what I felt at that moment. At first relief that I hadn't misunderstood the message of the book and also like I just had gotten punched in the stomach by someone knowing that I threw a few thousand dollars out the window.
I guess the moral of the story is always read the afterword and appendix before jumping into action.

Reality of online Trading

Online trading has greatly improved over the past few years but the brokerages are set up more for buy and hold than they are for traders. They have an entire system build on buy and hold because it is easier for them to have a platform that doesn't respond quickly. They also will profit from trades placed with a delay in quotations for market orders. They often will be delayed so much that even with limit orders you can get stung for a few hundred loss before the trade even appears on your screen. TDAmeritrade is what I used and their platform has been horrible and has seemed to have gotten worse the past 6 months. I would recommend investing in trading software that is designed for traders if you can afford it. I have gotten used to my current platform and like the look and have hesitated to switch but a week or two more of frozen screens and missed trades will drive me elsewhere. TDameritrade has a terrible service policy and seems to be more interested in losing revenue streams from traders rather than actually investing in there system. So shop around or even split your funds into two companies and find something you like best.

Getting out of the Market

It is never wrong to get out of the market. Contrary to popular rehtoric that you will miss the upside if you are out of the market, trading stocks is more about surviving to play again than it is about waiting in the deep water for the next wave to shore. There are times when making money in stocks is fairly easy and simple and there are times when it is nearly impossible properly assess risk or hedge your trades. You hear it on television everyday that you need to be in the market so you don't miss the next bull run but it is just not true. The large funds who manage all the 401 k money and large mutual funds are the only people who benefit from you keeping your money in the game during a bear market. They get paid fees that are often based on percentages of money managed rather then on performance. The hardest thing to do after a down turn is to take out your money because the desire to get it back becomes stronger with every loss. If you have any way of paying bills during market corrections, such as the one now in 20007-2009, you would be much better off not trying to fight the market. If you are using your own funds or managing someone's money you will have to be the contrarian and stand firm with your advice. You can lose money quickly in bear markets but if you are a good trader and keep enough in your pocket to try again when the bear leaves town you can make back all of the losses in short order. If you ride out the storm by staying all in you might end up with nothing left take advantage of the easier opportunities. Fear and greed are aways the drivers of the market. The most unusual time to see greed drive decision making is after major losses. Even if it is still during the teeth of a bear market, people tend to become more greedy and will fall for the notion that you have to be in the market at all times to catch the rallies. They have a stronger feeling of greed take over and it often overshadows their fear of more loss. It is this time when the next down leg can wipe out the last survivors and cost them their chance being around for the bottom.

Bear Markets are enticing! proceed with caution

Bear markets are difficult. Earning a living during a bear market is hard work and extremely frustrating. Numerous times I have given back small gains by trying to turn them into bigger gains. I have gotten burned so many times when a stock goes well for a time and then immediately does a complete reversal for no apparent reason other than drastic short term profit scalping. The term scalping is occasionally used to describe day traders or hourly traders who like to scalp profit quickly by buying and selling in very short intervals. It adds to market volatility and can greatly increase the risk for individual traders. The only ways to profit from this method is buy buying large numbers of shares or buying the most extremely volatile stocks. Scalping is a legitimate way to make money in the market but it is risky because if you are wrong about direction the losses will increase rapidly. I have repeatedly made the mistake of going back to the well one more time after scalping a gain. After buying in again and trying to add to my position a slight decrease in price with twice the shares will erase the gain. I you don't have to trade in a bear market it is better to sit tight and wait. If you want to trade in a bear market anyway just make sure you can survive a drastic reduction in capital.

watch for volume changes

For the individual investor it is usually more important to be nimble and reactionary in bearish markets. Actually this could be true and necessary in any market. The larger institutional investors move stocks by trading millions of shares at at time. You can get an idea of what stocks are in favor by watching for large or unusual increases or decreases in volume. The volume is a measurement of number of shares traded and can be seen on most stock charts. The reason being nimble is so important is that often you don't know the institutional investors are buying until they have already made the trade. If they big guys are buying you want to jump on board and ride the wave and noticing volume spikes is one way to catch a ride at times.
Investors business daily also is a good source that monitors extreme volume changes. Of course this isn't always a perfect way to tell what stocks are going to move because thinly traded stocks could show a large increase or decrease with only a small number of institutional investors buying or selling. Therefore it may not lead to a strong run in either direction. The more you pay attention to volume and trade trends you will start to get an idea and usually the stock will start showing a strong trend line.

beware of brokers like Td ameritrade

The trading platforms of the major brokers typically do not run well and can be faulty. Spend your time searching for a platform that will be reliable and provide excellent execution. There is nothing worse than losing a few dollars because you couldn't get a trade placed when your screen freezes due to broker over load. Do your research and check in some online forums with other day traders for advice on the best trading platforms.

bear market danger

If you are in a bear market there will always be people calling the "bottom". There will always be people saying, very loudly, that because a stock is $10 and it once was $40, it belongs in the value category. The best advice is to not listen to the major of people who come on television and give stock picking advice. They are usually on the tube for reasons other than their stock picking prowess. Here are two of the most likely reasons for someone to go on a program and pump certain stocks.
1. They have a book to sell
2. They own the stock and it has been trashed and they want to sell. (pump and dumpers)
3. They are horrible at picking stocks and have a horrible track record and need the publicity in order to keep their business afloat.
Try to get into the habit of searching the Internet and financial papers for your stock information. It will be more difficult at first but you will be much better off in the long run.

Limit losses

The best way to protect against a major loss is by using trailing stops or stop limit orders. You will have to learn to take several small losses in order to capture more gains. However, when you are using a trailing stop or stop limit you might get "stopped" out right before the stock makes a big run upward. It is more art than science when it comes to deciding what price to use or how much loss you are willing to accept. You will also have to watch the particular stock your are trading in order to get an idea of its volatility. The stop order will be much different for Apple then it will be for Microsoft. I am still somewhat surprised that stop loss or stop limits orders are rarely mentioned on financial programs or "advice" shows. If you learn to use them early in your career you will have a much higher chance for success.

For example: if you buy a stock that is $100 per share, and you think it is going to go to 110 you might want to put in a stop limit order at 98. If the stock moves down your order will be activated at 98. If the stock is not heavily traded you may be able to have it sell off right away but it is a good idea to put your activation price higher than your bottom line sales price. You could use 98.50 as your activation price and 98 as your sale price. If the stock is moving down quickly and you do not activate at a higher price, you might not get your order filled. The stock might go from 99 to 97 without anyone buying your 98. Basically you will get jumped over and your limit order will still be in at 98 when the stock is down to 95 a share. One your price is missed, which it often will be the case if your activation and sale price are the same, you will have to sell at a lower price, cancel the sell completely or wait until the stock bounces back up and triggers your stop order that sells. This is sometimes what you don’t want though because if it makes it back up to your stop price it might be moving higher. If your order gets missed on the way down you should either manually enter at a lower price to prevent further losses unless you have believe the stocks will be back up again. It may or may not so that will be the question you have to ask yourself if those circumstances show up during your trading day.

Pick a strategy

First on list of things to do for a new trader is deciding whether you want to be short term, medium term or long term trader. The two biggest factors in making this decision will be your tolerance for risk and your schedule. If you are working another job it will be very hard to give enough attention to your portfolio to be a very short term or day trader.

How can you learn to trade?

Learning to trade stocks effectively is not an easy thing to do. There are hundreds of things to learn if you want to be a day trader but you can only learn them by getting in the game. I don't think you could ever be prepared for trading your own funds from a book or a course. You can learn from classes or courses but the best lessons come from trading your own money. It certainly keeps your attention. I took the challenge to be a day trader just in time for the credit crunch in 2007. I don't know for sure but I am assuming that it wasn't the easiest time to start. It really has seemed more like being thrown into the fire. My mistakes have been many but I am still learning and trying to get better.