People I know like friends and family who are not traders have been trying to tell me where the bottom is in this stock market and that this is a great opportunity to buy this drop quickly. This started 4 weeks ago and is ongoing. Thinking buying low and selling high is an easy thing to do shows the ignorance of the reality of downtrends, crashes, and bear markets. Buying low does not work in long term downtrends as the market will continue to make lower lows and lower highs.
The stock market is currently in a bear market downtrend, highly volatile, and the worldwide GDP is being crushed, we are still near the beginning not the end by every technical and fundamental metric.
Short selling is a specialized skill many traders use but it can be more dangerous than simply going to cash due to the extreme volatility in the market and how fast you can get on the wrong side of a short term 1,000 point Dow rally. The biggest rallies happen in bear markets making the short side a different type of trend than a slower less volatile uptrend.
It is the height of both ignorance and arrogance to think you can call the low to buy and predict how all of this will play out. Anything can happen in the future due to uncertainty, complexity, and unknowns.
What we can know is whether we have an investing or trading system with an edge that will give us buy signals based on historical price action to increase the odds of success if we are currently out if and when we do get back in.
If you don’t know what to do with your stock holdings in 2020 here is good universal advice:
#1 Find and research an investing or trading system with an edge that fits your risk tolerance, could meet your return goals, timeframe, and you believe in enough to follow.
#2 Follow that process.
Here are five potential signals to look at for possible entries with an edge that backtest well.
- If you are a buy and hold investor with a long timeframe then you have decided to hold over the long term.
- Buying a $SPY break back over the 200 day simple moving average
- Buying a $SPY break back over the 250 day simple moving average
- Buy $SPY when the 10 day exponential moving average crosses over the 50 day exponential moving average.
- Buy $QQQ when the 5 day exponential moving average crosses over the 20 day exponential moving average.
Here are my three moving average books that explain the trend trading edge in these signals and show many others:
Here are my two moving average eCourses:
Backtesting 101 https://newtraderuniversity.com/p/backtesting-101
Moving Averages 101 https://newtraderuniversity.com/p/moving-averages
This post is for informational purposes only and is not investment advice.
