My basic trading philosophy can be summed up by one simple quote:

"Trade the ticker, not the company" - Nate Michaud

Thursday, May 8, 2014

Question: "How Does Your Strategy Change in a Bear Market?"

"Sell in May and go away" is an expression commonly heard in trading circles. Veteran traders know that the summer can tend to be slower, especially in the OTC market. The first few months of 2014 were the craziest three months of trading in the OTC market I have experienced since I began trading. I couldn't believe the number of plays we had on a daily basis, and it seemed that every time one died, another would immediately surface. Finally, we are beginning to see action slow down, and many traders are left wondering what to do.

I have been asked a number of times about how my strategy changes as the market shifts. To be completely honest, my strategy barely changes at all. If anything, I become slightly more short-biased, but this really only applies if it is a very bearish market. However, I am still watching the same chart patterns, I am still looking for the same setups, I continue to take the same approach as I would on any other day.

There are far fewer runners right now than there were in early 2014. All this means is that I must be more selective as a trader. I don't find different setups to play to keep myself entertained. If there's no setup, then there simply is no play. It is perfectly fine to go a day or more without even making a trade if the setups that you're comfortable with don't present themselves.

The natural question you might be left with is, "If I don't trade as much, won't my profit rate decline?" Unless there are a couple of truly spectacular setups in a slow month, yes, this will be the case. Trading does not provide a steady monthly salary. Some months will be great, some months will be a bit slower. The key to making it as a trader is remaining consistently profitable. Every day, no matter what kind of market we're in, I play the same chart setups I've been playing for the past two and a half years. As a result, I have never had a losing month and very rarely even have a losing week. I survive market slowdowns/downturns because I focus ONLY on the patterns that work for me, even when there are very few of them in the market.

I hope this helps clear up any confusion!