welcome to this video on the bear market strategies of 2018 and this is going to be
universally applicable so if you're watching this yours in the future this
lesson is still very valuable for you because I'm going to talk about
universal principles of finding the end of a raging bull market or a raging bear
market so in this case we have been having a raging bull market for many
many years and it can be expected there have been a lot of pundits who have been
predicting the end of this bull market for many many years and because it's
gone beyond the average we're beyond the statistical average of a bull run and
you'll see a lot of people who have predicted it based on fundamental
analysis technical analysis etc and then they've been proven wrong in the market
just continues to go up okay so the first thing I want to say is that one of
the universal principles here that we can apply is that there are no
certainties in trading or investing so nobody knows alright let's just call it
what it is nobody knows there's a lot in objections
that people give to various some lessons you see it on YouTube comments and so
forth of people say well hindsight's 2020 and guess what they're right
they're absolutely 100% right nobody knows the future so when it comes to
predictions get all these people predicting a bear market I really hate
the term prediction when it comes to market analysis because well kind of
implies that people know the future and we don't I don't you don't Warren
Buffett doesn't and no one does so what we're doing is we're trading
probabilities in a 1 with the probability is then that means by
definition sometimes we'll work out and even when the odds are on your side
sometimes it doesn't work out even though the odds are on your side I mean
otherwise it would be a certainty by definition right so ok so that means
that we need to then employ risk management and money management for
those times when it doesn't work out and I'll just be very candid with you and
very transparent here there were several times when I thought that Oh
probabilities are lining up I think we're going to have a bear
market here and guess what I was wrong so I'm actually shorted the market a
couple of times the major indexes the S&P Nasdaq now whatever and didn't work
out into the market went higher but that's okay I didn't really lose much
money because of my money management risk management no give you an example
of that here in a moment okay so let's talk about what happened here recently
in the markets and what lessons we can learn from this into the future forever
ever more universal principles so first of all on the daily chart and we're
looking at the S&P 500 here obviously okay so we've already established we're
in an extended bull market so I'm just gonna use the IRA side we could you can
use your favorite indicator here this is what's called a convergence pattern so
our exciting going down get a lower high on price lower high on our side okay big
deal fine that's okay then we get a divergence on the IRS and the weekly so
here we get price going up and a little lower high on RSI alright and then to me
more significantly on the monthly chart we get a divergence as well and not only
that but we are in what's called the overbought zone so as you see my RSI
turns a different color when we're in the overbought zone and that's labeled
here at 17 and so that would be considered more significant than this
one why because on the weekly we are not in
the overbought zone were not above 70 but in the monthly we are so that
divergence is considered more significant for that reason number one
in number two because it's also in the monthly and as you can see we haven't
really had this on the monthly monthly has just been you know cranking up here
and you'll see well from the visible part at least you can see goes all the
way back to July 2016 so this is the first time that and again there's been
no divergence we haven't been above the so called overbought zone this whole
time on the monthly that's the first time on the monthly that it's occurred
now when you're looking for a bearish mark
in other words for the market returned from long term bullish to bearish we
want to see that on the long term chart in this case the monthly so this is the
first time we've actually had that and that's the very first significant thing
to point out here and so I bought a bunch of puts up here saw this early and
actually bottom way up here and yeah it's working out okay all right now okay
in fact I bought some leaps even to in just in case this does turn into a long
term when I say leaps I'm talking about quotes so which is a bearish hate to use
the word bad because that refers to gambling
most people's terms are referring to bet says gambling but you know just taking
the side of the bearish side of the market so I'll put is buying basically
the same is shorting if you understand what's shorting is so I'll comment to
either for those are not familiar with option terminology okay so yeah in case
this turns into a long term bearish market then great I'm all set all the
way through gosh a big part of next year actually alright but then also some
shorter term patterns and I want to talk to you about that
so what Oh before we get to that let me show you some more things here that I
was looking at my right whole done actually
nobody can do I gotta take all this off here and then I got a pull up format
analysis techniques yeah okay so Mike McLelland
summation index and I apply an SMA to that as well so let me pull up that
puppy so here's the other thing that I was looking at and so as you can see
we've got a little over hi there but the summation index is going down very
dramatically all right and the blue line is my moving average in the red line is
actually the summation index so I look for the cross of the
cementation summation summation index good thing you don't have to talk to
trade to go below the moving average and that's one of the things that I look for
okay and in fact let me pull this over here a
little bit okay so you could see it crosses below and then you can also see
that we get if you look at this compared to that you'll see that okay that's
again kind of a divergence type pattern I didn't short there you didn't get in
short until here alright okay so that's another thing so the point of all of
this is that trading as I said there's no certainties in trading what we are
doing is we are putting together pieces of evidence pieces of uncorrelated
evidence that and you can think of it almost like a legal case where you want
a preponderance of the evidence no one thing is going to give you a certainty
in trading no one thing no one candlestick pattern no one moving
average no one indicator so I get a lot of times people saying you know hey can
you just give me a simple way of making money in the market just one thing you
know what's the one ending what's the best indicator for making money that's
when it'll get a lot people email me and say Barry what's the best indicator for
making money I'm like wow okay we you need a lot of education you don't even
understand the basic premise of how a technical analysis works there's no one
thing that'll directly make you money it's all about putting together a
trading plan methodology strategy system whatever you want to call it and all
those things mean that we're putting together a number of uncorrelated
variables now when they all align it still doesn't give you a certainty but
puts the odds on your side all right so these are some of the things that I was
looking for when I bought all those puts then on top of that as I mentioned at
the beginning of the presentation here today
I'm still not a hundred percent sure right never so therefore we employ risk
management and money management and what that means for me well there's several
things that it means for me so first of all my risk very very small on this
trade so I'm shorting here and my stop literally went right above that bar
that's my initial protective stop and entry down here so my risk is basically
one bar alright my risk is one bar so as you've probably heard before you got to
keep your losses small let your winners run so that's how I keep my losses small
I literally the most I'll risk is the range of two bars on the shortest term
chart and I always look at three timeframes
so on the shortest term chart that's where my risk is now my reward generally
is going to be either in the mid a mid term chart or the long term chart so
what this is here this green line that's our fifty period simple moving average
alright and so that is a very significant moving average why there's
only one reason that's significant everybody and as pure key looks at it
and so it has a self-fulfilling prophecy again I get a lot of people emailing me
saying well bury the stuff you teach only works because it's a
self-fulfilling prophecy because so many people look at him like yeah why do you
think stuff works in trading because I'm free but he's looking at it that's
exactly why we're does work and why else would you think it would
work you think this would be working on astrology or ancient Phoenician
numerology no it's it's a market it's an auction place and so where everybody is
concerned that oh the market may stop here guess what they they take profits
where they buy or whatever and so yeah it's mass psychology that's the whole
deal so you can see here by the way this also on the daily chart so at the 50 ma
on the daily chart what happened um yeah people got a little hesitant there and
so sure enough boom boom couple of neutral bars market paused for two days
and then it cranked down and where did it go well went right down to the 200 MA
shot below it but then the next day it came right back to at Friday and open
and closed right around that level so again what does that mean that means
everybody and his oh we'll say gerbil this time he is looking at the 200
period simple moving average and so we overshot it why because of emotional
enthusiasm your rational enthusiasm perhaps as Alan Greenspan was has once
said and then they kind of come back to the senses oh wait whoops
we can't just slice through this 200ma and so the market came back to it
I am so anyway I've locked in some profits already here and again you got
the confluence of two things you got the confluence of the 200ma here you got the
confluence of the 50 ma there some people are looking at the dailies well
actually most people are looking at both anyway who are watching these timeframes
which again is everybody and their hamster so again great place to now
that's part of risk management so risk management includes placing your stop
and then you know already the risk reward ratio on this trade is already
you know fantastic right it's already great now locked in some profits and you
know if this does not turn into a long term beer market ok it goes back up no
big deal right still made money and all of a trailing stop put in but if it goes
down well then I just make more money and that's the point that's the point
here we're here to make some money honey not to predict the long-term future of
the market in fact I'm really good at predicting again I hate to use that word
predicting that of determining half cycles in the market and so what I do is
I'll buy it the at a cycle low and I'll take some profits at the very next cycle
high move my stop and then I'm golden and do that on every single trade and
then when the market moves big time great I'm there and if it moves a little
time great I made a little bit of money but that's awesome I mean that's really
and again by the way at the point of that is it's easier to got to come up
with a better word than prediction here it's easier to determine a short-term
move in the market with high profit really then a long-term move in the
market and so that's why I always take my triggers short term over here and but
I base my reward on the long term and that's another thing here too by the way
so if you base your risk on the short term you basically reward on the long
term market long term timeframe well that's another way of getting a great
risk reward a reissue okay I've gone way over time here on
today's video but it's timely and even again even if you're watching this into
the future there's still some great lessons here that are universally
applicable so be interesting to see what happens from here on out now I've got a
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