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How Bull Volatile Turns To Bear Volatile - How To Proceed

Feb 15, 2021

Let’s talk about Bear Markets

Since this market chaos has taken hold, each week I’ve been covering each aspect of the different market regimes. Last week we talked about going from Quiet to Volatile and I touched a bit on the differences in bull and bear markets.

If we are to take the agreed upon (by whom) definition of a bear market, 20% below it’s high, then we are no longer in a bear market on a number of tickers, as we are no longer down -20%

Using that weird and entirely useless metric of -20% being a bear market, we should all go out and breathe a global sigh of relief because we are above the -20% mark on the Dow SPX and Nasdaq indices… for now, it could change in five minutes. 

I think we can all agree that this magic 20% number is entirely useless because what happens if we are -19.9% like we were in December 2018 on SPX, yet NASDAQ was down yes and no on the bear market??? Kinda???

It’s great for headlines, and I’m sure...

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Backtesting Mastery

Feb 15, 2021

I hope you have been benefiting from these posts. 

I realize that for many traders, they've never experienced a highly volatile bear market like this. Well no one has experienced it like this, just like any other bear market, this one is different.

However there are characteristics of all bear markets that are the same. That means that there are systems to trade and generate income during these markets, just like there are ways in roaring bull markets. 

Ironically my trading has grinding nearly to a halt during this period. 

For most traders, who still have their accounts and didn't completely blow up already, the volatility is very enticing.

These massive intraday swings are something we haven't seen before, and for traders who don't understand position sizing, they see 5% even 10% intraday moves, not realizing that they could make big money with 0.5% or 1% if they had the appropriate strategy and more importantly sized positions correctly. 

Do you know how your...

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Trading Bear Volatile Regime

Feb 15, 2021

What a day huh? Today's market action is characteristic of the transition between Bear Volatile and Bear Quiet regimes. It gets tricky in here as optimism starts to kick in as we rally from the depths of hell back to where we are now.   

Bears are nervous and are covering their shorts or waiting to cover their shorts, bulls who got punched in the throat last month and sold at the first bounce are starting to wonder if they did the right thing and start buying. This is what fuels bear market rallies, the most violent of all rallies.   

As you know we aren't here to call bottoms or tops, we let the market regimes guid us. What works in a Bull Quiet regime doesn't work in a lot of other regimes and what worked in Bear Volatile doesn't work as well in a Bear Quiet and vice versa.   

As part of the mentorship program I am running currently, AKA the Trading Thunderdome, we are doing extensive work on finding characteristics of the different market regimes and...

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58 Year Backtest of SPX

Feb 15, 2021

Hope you are well during this crazy time. 

The "Thunderdomer's" are continuing their very intensive work of spending hours per day manually backtesting the Bear Volatile and Bear Quiet market regimes. 

We had Grant do a monster backtest of the $SPX from 1962 to today, of only the bear regimes, either determined by SQN or by an obvious price action flip. As your skills develop as a trader, by doing these massive backtests you can rely less upon the SQN, a lagging indicator, and more on price action. This is represented in Grants manual backtest as you'll see he entered some markets while not in bear volatile or bear quiet regimes. 

I have to say, I could feel Grants frustration through this backtest. He mentioned to me numerous times how hard of a time he was having trading bear regimes on a daily basis. 

Over nearly 60 years of trading this returned 15.77%, who wants that sort of return beside people who refresh ZeroHedge all day long?

Literally you miss out on...

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