Category Archives for Inner Circle
The 7 Unbreakable Rules of Bear Market Trading
A bear market can leave you broke, angry, and feeling like a fool. The bear doesn’t just want your money. He wants your sanity, confidence, and self-respect. In a bull market, you get rewarded for taking risks. And the bigger the risks, the bigger your profits. Remember 2020 through early 2021? If you bought stocks, you did well. But if you bought cryptos, NFT’s, Lamborghinis, Miami real estate, and Rolex watches, you did even better. But in a bear market, you can do what feels responsible… and still get your head handed to you. So I want you to take my 7 unbreakable rules of bear market trading and put them to work for yourself. Starting with… Rule #1: Do Not Buy Stocks Just Because They Are Down A few weeks ago, a colleague asked me: “Should I buy Zoom (ZM)? It’s down 87% off the highs and at pre-Pandemic levels.” My answer was no. And you should be able to guess why. Zoom is at $78 right now. You could have made the same “but it’s down so much” case at $100 when it was 83% off the highs. Or at $125 when it was 79% off the highs. You buy a stock because you can make a strong case for it going up. Not because it dropped by some random percentage. Because if a stock can go from $588 to $78, don’t count out $68 or $58, because… Rule #2: The Fundamentals Just Don’t Matter Sometimes According to SlickCharts.com, just 87 stocks in the S&P 500 are up this year. And most of the names in the green are in energy, defense, health care, and consumer staples. That makes sense because of the war in Ukraine and the Fed’s tighter monetary policy. So if you made money this year, it’s because you understood the environment. You most likely did some combination of the following: Got long energy Shorted tech/growth names Focused on short-term trading. It certainly hasn’t been analyzing cash flow statements and forecasting earnings. In fact, I’ve been telling my community over and over that this coming earnings season is not about earnings. Yes, there are times when fundamentals matter, but right now, it’s about whether the Fed gets back on our side. And as we saw in 2009, the market bottomed way before the numbers got better. Rule #3: Buy Ugly and Sell Beautiful One of the most unusual things about a bear market is how hard stocks can rally. The market can be on the verge of death… only to skyrocket faster and harder than you can ever imagine. But the strength tends to disappear in a flash. It’s like the sellers are pulling a prank on you. So you have to buy when it feels most wrong to buy. And you have to sell when it feels like the market is finally turning around. Take this XBI chart. As you can see, I sold some at point B, and it kept going up. You could say I sold that piece too early, but I know from experience that in this market, those gains could have been gone just minutes later. And of course, I sold more at point C, after which XBI dropped. This process of trimming and trailing has been key to Inner Circle’s success in the 2022 bear market. Rule #4: Leave Emotion At The Door This is easier said than done. But, I have a simple rule for managing your emotions when the market is spiraling out of control: Size down, because size dictates emotion. That applies whether you are going long or short. The more money you have on the line, the more stressed you’ll feel. So you don’t want to press too hard. Because when you’re wrong, your losses will be smaller. And yes, you must get used to taking losses. And when you’re right, you’ll tell yourself “I knew I should have bought more.” But you have to remember that since bear market rallies are so powerful, you can make quite a bit of money from smaller positions. So don’t worry about missing out. As long as you can hit singles and doubles while minimizing your losses, the money will pile up. Rule #5. Averaging Down is Pointless In a bear market, you could be tempted to buy a stock like Tesla (TSLA) at $250. Then you’ll watch it tick down to $245, then $240. So you buy a few hundred more shares. It hits $230 and you buy another 100 shares. And so on. Before you know it, you’re out $100,000 because you bought a “good” stock on sale. And just because the bear can be so cruel, you hit the eject button… right before the stock goes up $100 in a week off a strong earnings report. Instead, be ready to dump anything that is not working. Since bear markets gyrate so much, odds are you’ll have another chance to get in down the road. Averaging down is for bull markets only. And even then you have to be careful. Rule #6: Always Have Capital on Hand Bull markets always push things too high. And on the flip side, bear markets always push things too low. You must always have capital on hand, because you want to put money to work at the extremes. And if you play it right, you can make life-changing money. Do you realize that you could have bought Apple (AAPL) under $3 in 2009? (adjusted for splits) If you bought 1,000 shares at $3, you’d be sitting on a $142,000+ position today and you’d even be collecting some dividends. These opportunities don’t come along every day, but you only need a few of them! Rule #7: Don’t Be a Hero Unless You Look Great in Tights As general life advice, you should try to be the hero in your own story. But you’re not in a movie about a trader that’s one trade away from fixing their life. Sorry Kevin
Continue Reading -->How Bear Markets Work – David Prince Talks Anxiety, Pain, and the Light at the End of the Tunnel
Want to learn how to trade through a bear market while keeping your sanity and wallet intact? Then check out this interview with David Prince, Founder of our Inner Circle community. David delivers the cold, hard truth about bear markets, including: What a bear market is beyond a mere 20% decline in the SPX The psychological toll the market takes on your brain How to keep your head screwed on straight when volatility is high Where he is finding opportunity The stocks he is watching for 2023 and 2024 What’s different about the oil sector What he sees in the semiconductor and housing markets What a bottom really looks like And more! FULL INTERVIEW TRANSCRIPT Note: this interview has been edited for length and clarity. Michael Comeau: David, I’ll start by asking you a simple question: What is a bear market? David Prince: There’s the classic definition of a being 20% down from the highs. But the way I see it, a bear market is a market that is trending lower and has not hit a bottom, and doesn’t have one in the foreseeable future. MC: Can you talk about the psychological impact of a bear market? What is that doing to people’s minds right now? DP: Sure. You have the initial reaction: “Oh my God, it’s not easy anymore the way it used to be.” Then you have the “Okay ,I hope it gets better” phase. Then you’re in the “hope didn’t work, I’ve lost money, and this is starting to get painful” phase. Then you have the “I need to find a new career” phase. Finally, you have the panic and distaste and lack of interest. It’s a long process that many people don’t adjust to or recognize until they’re halfway through. Sometimes you have angry people. And course, there are happy aggressive traders that love downside momentum because things go down much faster than they go up. For some people, bear markets are great. MC: How do you view the temperature out there now? The VIX is up about 65% in the last few weeks and all the sentiment indicators are very negative. Are people pessimistic enough? DP: No. We saw so many bullish extremes in 2021 and I expect more of the same on the downside. I’ve been around for a while and I’ve seen a lot of crazy things happen, but nothing like JPEGs selling for millions of dollars or Plug Power (PLUG) hitting $70. And cockamamie companies that have been around for decades losing money becoming hot stocks. You had names like Snowflake (SNOW) come off the lows from earnings and go up something like 70-80%. That’s not indicative of everyone being despondent and it’s not anywhere near the way you bottom. There is not that ever-present fear, like people waking up and asking “how much money am I going to lose?” I haven’t seen that yet. MC: So let’s talk about the silly stuff. We saw a boom in things like NFT’s, Rolex watches, sports cars, electric guitars, trading card games, cryptos. Has that stuff bottomed? DP: It’s sort of irrelevant to me. I won’t judge Where we are in the marketplace by really like how far Bitcoin has dropped. It Doesn’t have to go to $10,000 or $12,000 to create a bottom in risk assets. I almost don’t care. I don’t think the lows are in for the art market and the watch market. I’m into collectables, like sneakers, art, you name it. The point is that market has only barely come up. The car market is just beginning to implode. There will be upside down Lamborghinis everywhere you look over the next couple of years. You’ll be able to buy them for pennies on the dollar. There’s further to go, but I don’t paint them all with the same brush. MC: Months ago, inside Inner Circle, you talked about the semiconductor industry moving into a state of oversupply. Now JP Morgan is talking about oversupply of everything. Do you think that’s priced in? DP: It’s a process and it’s not a one-quarter deal. It’s often two to three quarters. And the difference this time is the amount of orders – the that double and triple catch-up to what they thought demand could be. The downside here might be longer and more severe than we normally see. These stocks will bottom before the news flow changes. But I don’t think they’ve hit bottom yet because of the ordering that every major chip company did in 2020 and 2021. MC: It feels like a lot of high-profile market people are catching flack. Like Cathie Wood wrote that letter to the Fed and people laughed. And Jim Cramer has been catching a lot of flack with the inverse ETF and those sorts of things. It seems like we’re in hero-killing mode, symbolically. Do you think that’s fair to them? DP: When you put yourself out there publicly, it comes with the territory, right? Movie stars complain about not having privacy, but then they make $20 million on their next film. So the direct answer is how they handle it. I think, in both instances, neither has humility. I think Cramer is beyond bright. If he was just a little bit more humble and talked about his mistakes, it would be better. And Cathie never said “I probably made a mistake here.” Neither of them had any humility, and that’s why they’re so attacked. I make mistakes all the time, but at least I come clean. Josh Brown made a bad call on the CPI and he came clean and said he was wrong. No one thinks about it anymore because he was humble about it. So I think they deserve it because they pretend they don’t make mistakes. MC: Let’s talk about humility. I felt like a genius in 2020, less smart in 2021, and a moron this year because I see an awful lot of red in my account. What advice do
Continue Reading -->How Kira Turner Went from Extreme Athlete to Elite Trader
Check out Inner Circle Moderator Kira Turner’s appearance on the 2 Bulls in a China Shop podcast: Kira shares: Her role in the Inner Circle community How she got into trading How she transitioned to trading from rodeo competitions and skydiving The odd reason she began trading How she finds here trades When she knows a position is too big The reason she changed her trading style in the past 2 years What’s working in the current market environment How to make money in news-based trades And more!
Continue Reading -->Kira Turner Talks Trading, Rodeo, Skydiving, and Life
Check out Inner Circle Moderator Kira Turner’s appearance on the SafeDayTrading Podcast: Kira shares: How her unconventional background helped build her trading philosophy What rodeo, skydiving, and scuba diving taught her about risk Why trading was so different in the 90’s Why she likes shorting The reason she came back to the markets after a Real Estate career And more!
Continue Reading -->David Prince Interview: How to Succeed as a Trader in 2022
In this exclusive interview, David Prince, leader of Inner Circle, discusses what’s working and what’s not in 2022. David discusses: Why so many traders have the wrong goals Why 2022 has been so different than 2021 and 2020 When to bet on low quality stocks, and when to chase them The trick for knowing when to dump a popular “story stock” The reason stock picking is the easy part The role psychology plays in your probability of success Go here to learn more about Inner Circle =>
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