Typing Out Loud: Last Week's Stock Slide And Why Bears Lose In Bear Markets Too
Tim Knight | Jan 23, 2022 11:53PM ET
Typing this on Sunday evening about an hour after the futures markets have opened, in the least surprising news in human history, the ES, NQ, and RTY were all green, although modestly so.
I wanted to share a few off-the-cuff thoughts as we head into this important week. Believe me, this post is as much for me as it is for you. Perhaps even more so.
When I am in a trading environment that I enjoy—and, for most of 2022, I would say that, yes, this is one I enjoy—I am constantly asking myself, particularly as I’m getting ready for bed, “How do you feel about the way you behaved today?” I am always looking at my own decisions, emotions, and behavior to see where I’ve done well and, more common, how I’ve let myself down.
It’s a common truism that everyone, bull and bear alike, loses money in bear markets. How could this be? I mean, wouldn’t it be that bears make money in bear markets, just like bulls make money in bull markets? How come bears get cheated in BOTH circumstances?
I think it’s finally dawning on me why this is the case. It’s because bear markets play with the human head way more than bull markets.
In a bull market, things move steadily higher. They last for years. The sailboat of the market has a pretty steady gust of wind, and those who just sit tight and do nothing are the ones that do best. It is, for the passive sort, easy.
Bear markets, however, are chop-fests, and they have an extra element to them, which is that they come at a time following a period in which all traders, bull and bear alike, have been “trained” to do all the wrong things.
From the bear’s perspective, the unfortunate “rules” that they have learned followed a lengthy bull market (and the one in the rearview memory spans an absolutely agonizing 13 years) are as follows:
- It is very unusual for the market to fall, and when it does, it recovers quickly, so if you get an occasional profit, get the hell out as fast as you can
- You want to be very conservative in your risk, so keep your bet size very small
- When you start to see strength, that means a huge new up-leg is coming, so close your positions out as swiftly as you are able
Get The News You Want
This is precisely why I have extracted one QUARTER of what I “should have” in recent weeks. I know this for a fact. Because, as I’ve mentioned, I track all my closed positions, and I have seen them go up, on average, 60% beyond the price at which I closed them. And my current positions are up about 22% on average. So to say there was money left on the table is a gross understatement.
Of course, in my defense, none of us knew a week ago that we were going to have one of the greatest “down” weeks in years (and it wasn’t even a full trading week!) Night after night, the futures were rally, and I’d think to myself, “Welp, I guess that’s all we’re gonna get” (see the rules above) only to witness stocks fall into oblivion the next day after a brief rally.
In short, it’s the BULLS feeling the bitter taste of disappointment for a change.
What has been agonizing, of course, is this simple fact: we bears have been waiting SO, SO, LONG for this, to not make 100% out of the opportunity seems to be virtually a mortal sin. I mean, for God’s sake, how often do weeks like last week come along? Almost never! And I let so much of that juice go right by me.
I think what a lot of this comes down to is the difference between a swing trader (which I am) and a day trader. We’ve seen what is theoretically possible in the world of Insane, Outrageous, Manic Trading, because my $100,000 virtual account is now at a laughable $185 billion.
As a swing trader, though, the bounce (which is evidently already starting as I am typing these words) should be immaterial in the bigger picture. Because what happens in the next 48 hours won’t mean a goddamned thing in April, May, or June, which is when my options actually go belly-up. It should be—I hope!—a tiny blip in the context of a much larger move.
So I guess that’s about it. I only have one silly position which I’m eager to dump (some SPY put options expiring on Friday). But you wanna know something? I had a very similar position virtually every day last week, and I dumped it each morning, fearing that we’d rally, only to see it explode higher. So I definitely am not cut out for this 0-DTE style trading, except for my fake account on my site, where the money is all pretend.
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