BTFD: A winning strategy for a bull market but what about STFR!

I have to say I was a little perplexed if not outright confused when I heard the term BTFD the first time coming from a long stint with Forex trading, where we follow the paradigm of “Buy Low & Sell High”. So basically as most of you know in Stock market you are either a Bull or a Bear depending on which side of the trade you prefer. Bulls love the when the market is going up & Bears like to short sell.

For 9 long years we had a nice bullish on US equities market where it was really profitable to buy every dip in the market & keep progressing. Being a technical trader I know that market works in cycles & nothing stays forever. I would wait for a technical pattern to emerge before jumping in the trade — that means getting a confirmation from the technical indicators. Everybody knew that this longest bull run had gone too far,, it was over stretched etc. etc. but the bulls just didn’t want to cave in. After such a long stint of bull market I don’t really blame the traders who were just Buying the f***g dip (#BTFD)!

And then the “unthinkable” happened market finally broke down & lost 2300 points in 3 days — the real damage was not the correction that was way overdue but a lot of our fellow traders got burnt since they were so used to buying the dip. So everyday it dropped they picked up new positions thinking this is just another opportunity to buy.

Trading the FX market in the USD Majors there were always USD bulls & bears, but the neat thing was that you could very well be a USD bull one day & Greenback bear the other & still make money but what I found was that stock market traders followed a different premise, where you are either bulls or bears — My question was why do the bulls have to wait for the market upswing to trade with conviction or why do the bears have to confirm a down turn in the market to take a stab at it? All you have to do is to let the patterns play out & trade as per the technical indicators — even if that means having some off days to figure it out — sometimes it’s just fine to sit on the sidelines & wait for the right opportunity to emerge. There’s absolutely no reason to rush into trades which are based on emotions rather than sound technicals. If you do, you are setting yourself up for a failure.

Ok enough talk… let me elaborate this point with the help of a couple of charts.

This was a recent trade of Pound (GBP/USD) where 1.4000 was acting as the resistance initially which penetrated gave bullish trading opportunity of about 60 pips but the market conditions reversed the the same day & the same resistance level which had become the support on the up move got broken again to the downside & provided a bearish trading opportunity of about 100 pips. Now I know you must be saying that FX market is much more volatile than Stocks but keep in mind the fact that technical levels play out the same way in both. Looking at an example of a stock with the recent huge swings in equities.

chart courtesy by StockCharts.com

This trade took about 3–4 days to play out with the market turning lower from the peak the stock also dropped to the support area & 200EMA from where it got a significant bounce with the one day relief rally in between the chaotically bearish week. Now as a bull trader that bounce provided a perfect opportunity following the BTFD rule & technical levels supporting as well. It would be fine if you are playing the bounce but taking your profit & not carrying the position in such volatile conditions because of what happened next. Market again turned sharply lower the next day coupled with bad earnings for this particular stock, giving a huge gap down & in the process took out a strong support area from where this recent bull run had started. A technical trader here would go short on the stock once the support is broken but a bullish trader would either miss the opportunity or try to force a losing trade by going long. Let’s assume you have missed the opportunity — you should actually wait for a bounce in this stock & sell it there when the stock turns around — in other words Sell the f***g Rip (#STFR). It would actually work the same way for bears as well who get to wait out much longer than the bulls.

There will always be plenty of opportunities to trade no matter which direction the market is moving. Successful traders are the ones who are able to adapt to market conditions, wait for the right setups & employ proper risk management. So my fellow traders — BTFD in a bullish market & STFR in a bearish one. Happy Trading!

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Signing off…

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