The markets haven’t been making our lives very easy in recent weeks, which is why I’ve been looking for a low risk trading solution that will appeal to anyone who wants to keep a really firm handle on their money.
One of these solutions, in particular, looks very promising – I’ll give you more details in a moment.
First, I’d like to take a look at just what the markets have been throwing at us…
A couple of weeks back, I showed you the potential head and shoulders forming on the FTSE.
Well, earlier this week, the neckline was broken…
And the market hasn’t hesitated in its downward slide since then.
Low risk trading, the death cross and the onset of the bear…
I’ve spoken a few times in the Market Maven about the dreaded “death cross” (when the 50-day moving average crosses below the 200-day moving average).
As the name suggests, it’s not a great sign.
Well, death crosses have been popping up all over the place. Most recently on the S&P500 last weekend:
And it looks like this death cross wasn’t mucking about – the index has lost over 8% of its value since then.
There is definitely no shortage of doom and gloom out there.
The deal that Obama struck over the debt ceiling last weekend did very little to lift the mood of the markets – we saw a brief surge over the weekend. However, poor data from the US hit hard on Monday, and the bad news has just kept on coming.
So, is the bull market over?
Is this a bear market?
Is that a bad thing for traders?
What should we be doing?
The origins of bulls and bears
I’m really not in the business of picking market tops and bottoms – and I don’t recommend it as a trading strategy – they are notoriously hard to predict.
But if a bear market is forming, we need to be sure that we recognize it and understand what it means and how it will affect our trading.
Whereas a bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases – a bear market is a general decline of the stock market over a period of time. The onset of a bear market is a transition from high investor optimism to widespread investor fear and pessimism.
There are many stories about where the terms “bull” and “bear” originally come from, and the exact origins are unknown.
Some claim that it’s to do with bearskin traders in the 18th century selling skins that they didn’t own… or bulls attacking their foes by thrusting their horns “up”, while bears attack by biting “down”…
… another story is that New York newspaper editor Horace Greely coined the term after watching bull-and-bear fights, when ranchers would tether the two animals to fight them to the death. Apparently, each time the bear killed a bull, the bull would be replaced by a new animal, until the bear was defeated – so the bull (or bulls) always won in the end.
Warning signs (or lack of them)
Whatever the reason for calling them bulls and bears, the result is the same – markets rise on surges of optimism, and fall again on waves of pessimism.
Human nature (and a long hard look at the economic outlook) don’t do us any favours in this cycle – arguments about a rosy future always seem more persuasive when we’re at a market top … while a bleak outlook will seem more likely when we’re at a market bottom.
In fact, economic outlook is always upbeat at a market top, and downbeat at a market bottom.
Fat lot of good that does us!
When judging market sentiment, it’s worth remembering that at the top of the market, news doesn’t suddenly stop being good and become bad. Rather it stops getting better.
Likewise, at the bottom of the market, news hasn’t suddenly become positive, it just isn’t getting any worse.
What a bear market means for us
I don’t want to sound gleeful at the prospect of an impending bear market, but this really needn’t be bad news for us traders. We can make money if the markets are going up, or if they’re going down.
In fact, the trickiest market conditions for us have been the directionless behaviour we’ve seen in recent months.
I also don’t want to jump the gun here.
For many people, officially, it’s not a bear market until 20% has been taken off the value – which, in the case of the FTSE, would bring us down below 5000 – which is looking like a real possibility this morning.
And what it means for us is that we should be developing a more bearish outlook – seeking out selling (rather than buying) opportunities.
However, until there is a clear trend, traders need to be watchful of longer-term trend-following strategies, where it’s too easy to get tossed about and thrown out of trades by volatility.
Which is exactly why I’ve been hunting down low-risk alternatives…
The one that’s really caught my attention uses fixed-odds trades. If you haven’t come across them before – they are a valuable way to seriously control your risk. I’ll be blunt with you – they don’t have a very glamorous image, but then low-risk solutions rarely do!
What they can offer you, though, is steady profits, and safety… safety… safety…
I’m still working with this system at the moment and putting it through its paces, but hope to bring you all the details soon.
