Market Is Crashing To Zero Vs. Index Prices Are Going To The Moon Crowd
As the market nears all-time highs, the general public is beginning to hear a constant barrage of doomsday forecasts along with their counterparts shouting that this is the start of a new bull market. Today you can go to the bookstore and find several books that predict the end of the fractional banking system, and some even predict the end of modern civilization as we know it. You can find the proclamation of a new bull market in various print magazines and a host of popular websites. Here’s my take on the situation: things are never as good as they seem, and things are never as bad as people think.
The truth of the matter lies somewhere between these two extremes.
As short-term traders, the direction of the market is of little importance, at least from a trading point of view. Of course, the direction and speed of any market move can have a profound effect on our personal lives. However, let’s stick with trading for now.
Given that the market is approaching all-time highs and P/E ratios are on the high side, I think a prudent trader would be cautious when trading all-time highs. Breakout trading at new all-time highs is a risky business. The logical assumption would be to trade on the short side, right? Nope.
As a trader, we are chart traders and a sensible approach to this precarious market would be to trade what you see on the chart, like you always do. There may be warning spikes in price, both long and short, which should be a reminder that powerful trading forces on both sides are making their own plans for possible market outcomes. Still, we are chart traders and still looking to understand what the chart is showing and the context of the market.
So should you change your trading style with all the fuss we’re hearing?
The proper course, in my opinion, is to continue trading as you would any other day; but I have an idea in the back of my mind that these are times of heightened emotions and I would switch to the conservative side of things. Stick to your trading plan and keep in mind that unusual moves both up and down are now part of the trading equation.
As you may have read, just when everyone is convinced that the market has to fall, it continues to rise. Sometimes it breaks out to the long side, this is called scaling the wall of worry and the market can scale the wall of worry much higher than your futures account can withstand. On the other hand, there are great chances of spikes to the downside as bearish traders start looking for any weakness in the market. Your job is to stay the course and be aware that these are times of increased risk and to be diligent in avoiding high-risk futures trading.