Sunday, November 2, 2008

Trading With the Market

Trading with the market and not against it can be the quickest way to profiting in the stock market. This one thing can give you success in the market even if you are terrible at everything else.

It is no secret that people can make money when we are in a bulls market. In fact “In a bulls market everyone is a genius”. It is easy to make money in a fast moving bulls market, just close your eyes and pick a stock.

Is it the best way to make money? No, but it does work in a market that everything runs up. This is the strategy most people seem to adopt. They just buy as much stock as they can and hope it goes up. In a bulls market this works because they are trading with the market. Everything has buying pressure.

Most people are Okay with being bullish and buying stocks hoping it will go up, but when a bears market comes along it is a disaster. All the bulls get pounded, and everyone seems to believe it is the end of the world.

In reality it is just as easy to make money in a bears market as it is to make money in a bulls market. You just need to be trading with the markets. If the markets are heading down and you are buying stocks of course you will lose money. It only makes sense.

But if you are shorting, buying puts, or using some other method to take advantage of falling stocks you can actually make money as the markets crash. Everyone assumes you have to be bullish when you are trading, that if you hear about a hot stock it has to be a stock that will go from $30 to $100 not from $30 to $5.

The unwillingness to make money on the downside is what gives bear market a bad name. Jessie Livermore has a point when he says, "They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side." If you are trading with the market you will most likely make money. If you are trading against it you will most likely lose money.

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