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.

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.