Robert Folsom, writing in the Elliot Wave International newsletter, lists the following rallies during a thirty-four month period, noting their duration and their percentage gain.
- 152 days +52%
- 28 days +11%
- 77 days +19%
- 69 days +27%
- 31 days +30%
- 35 days +39%
- 28 days +27%
Wow, what a bull market that must have been!
Wouldn’t it be great to live in a time when we had a bull market that rallied like this?
The thirty-four month time period in the example, above, was from September 1929 to July 1932.
It was not a bull market at all.
During the period when the market rallied so dramatically, as shown above, the Dow actually fell an astounding 89%, even though it went up 43% of the time.
That means that the 57% of the time that the market was not going up, it must have been either going sideways or, given the 89% decline over the period, selling off with a vengeance.
The fact is that during this period, the market alternated between explosive rallies and violent sell-offs, with relatively few calm periods.
This is much like the markets of today.
In my recent newsletter on the changing futures markets (The futures markets they always are a-changin’) I made the point that today’s markets are less liquid and more prone to sudden spikes due to the absence of many formerly important institutional traders.
Add to this reduction in important traders, the uncertain economic times in which we live and you get the dramatic rallies and breaks of today which may be much like the stock market of 1929-1932.
I am not trying to predict that today’s markets will continue to resemble 1929-1932. As I tell traders in my Electronic Trader Mentoring Program, the market never exactly repeats itself.
That would be too easy.
However, given today’s uncertain times, you need to trade like a tiger hunts – patiently waiting for the best opportunity and not expending undue energy and capital in lower probability trades.
As to holding positions overnight, I cannot imagine a less opportune time to extend your timeframe and hold trades beyond the day. It seems that today’s rallies and sell-offs are randomly distributed, making trades held overnight little more than coin-flips.
I learned early in my trading career that my sleeping and my trading account improved once I vowed never hold a position overnight.
If we are resolved to patiently wait for the best setups and exit our positions prior to each day’s close, what else should we do?
First, I would make sure I was clear in my plan and absolute in my discipline.
Next, I would execute my setups using conservative stops working to catch winning trades without investing much in any one trade.
Third, I would only commit a small percentage of my account to any losing day and I would endeavor to press my advantage whenever the market rewarded me.
Lastly, I would resolve to contact Jeff to join the Electronic Trader Mentoring Program as soon as possible. After all, you can use every advantage in these uncertain times.
Take my advice – follow my four steps, get out of your trades by the end of the day and sleep like a baby and you will become the trader who advances during market declines.
Go get ‘em, tiger.
Wishing you success in your trading, Jeff
Copyright © 2009 by Jeff Quinto
All rights reserved
Note: There is a print link embedded within this post, please visit this post to print it.
