When it comes to a career or entrepreneurship, it’s often said that you need to be up to your game and make it happen. Nobody else is going to do it for you. I agree.
Taking this mindset to trading may not work out well, because we don’t control the market, we can’t make it happen on a day-to-day basis. In short-term, it has a fair amount of luck and randomness involved. Skill, mindset and preparation work out in the long-term. Trading profits are an “inevitable” result to a good process. This is how I let the market work for me, I let it happen.
We all have biases on what we believe to be true, be it past personal experience or things we’ve read and learned. I definitely have some bias on trading and technical analysis, so this here is my opinion and investors with different styles may agree or disagree based on their own beliefs and biases.
I found my notes from two years ago when pandemic hit the stock market, volatility was through the roof and everybody thought the world was going to end. I’ll share my thoughts from March 2020, when my account was in cash and I had time to think rationally.
March, 2020
Let thoughts go and bring mind back to the current chart. Or I’ll start trading my emotions not the price action. $VIX is making a new high. A lot of damage has been done to the $SPX chart and it’ll take time to sort things out. No rush.
My observations during the market crisis
1. Fundamental investors become unprepared technicians. In a rising market they care about narratives and financials of a company, but when everything starts to tank they start timing the market, watching price levels, catching falling knives etc. Besides human nature, this is probably because looking at price is actually better in uncertainty than relying on opinions about a company. Also, I believe technicals often lead fundamentals and one can’t wait for 3 months to see the next quarterly earnings to make a decision. Some investors may even become short-term traders without a plan when faith is lost.
2. Everybody starts predicting when to buy stocks. Polls pop up in social media. Investors care about entry, I care about exit. Thanks to my trading plan I need to time the market less than those who “are not timing the market”. I don’t need the best entry for better buying price, I just need a part of the move in my favor.
3. Surprised investors keep buying the dip when it’s already a downtrend and experienced participants have switched to “sell the rally”. The more unprepared one is, the more he or she needs other peoples’ opinions, which create all kinds of biases.
4. The playing field has become more even due to unique uncertainty. Traders on Twitter with 30-40 years of market experience say they have never before seen anything like that. Even Ray Dalio admits mistakes in hindsight.
5. Gold and crypto failed with the narrative of a safe haven. Cash is king, at least in short-term. Question everything and never believe any general assumptions. Price action is the only real deal.
6. Understand the need to preserve capital. Standing aside at horrific market events feels even better than making some money.
7. Less experienced are rushing in to call the bottom, because in their mind the market moves much faster than in reality – something I’ve been experiencing and also working on to overcome myself.
Aftermath and hindsight
Today, two years later we all know that March was the bottom followed by a strong bull market in equities. Everything looks so clear and logical in hindsight, but in the midst of the market panic I thought there was going to be a sustained bear market for the next year or so. Of course, thanks to my preparation and plan I started buying stocks much earlier. In April 2020, when markets started to recover I bought some stocks only because my strategies told me so. It didn’t feel good and I wouldn’t have done it based on my gut feel. The next downtrend may not recover that fast. Making decisions based on gut feel or recency bias is not a reliable way to trade.
Share this post