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Trading Strategies

Surviving Bear Markets

Future bear markets usually arrive every three to five years (four years on average), and they can demolish your capital. Avoiding these slumps is the key to protecting your hard-earned capital. Unfortunately, most investors have no clue as to the market's future direction, how the stock market works, or how to minimize their losses. Therefore, it is not surprising that investors suffer the consequences when a bear market sneaks up and severely mauls them.

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Lifestyle Investing

It has been recognised for some time that investment strategy should take account of the flexibility provided by future earnings from employment. In effect, these future earnings can be thought of as a holding of a "wage-linked bond" whose risk characteristics will vary from person to person and should refl ect the riskiness of an individual’s earnings. These implicitly risky bond holdings can be taken into account in setting strategy.

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Buying on Bad News

Even the best companies, industries, and sectors fall out of favor from time to time. A fully-informed investor, with a pocket full of cash and a firm understanding of the situation, can calmly stride into a turbulent market and buy up shares of these underdogs at a fraction of their intrinsic value. How do you know which companies are permanent losers and which are undervalued gems? Use these tests of quality to determine if you should invest your money or keep it stashed in cash.

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Market Timing

Market timing is the most important expertise you must master to become a successful trader. This is where the majority of stock market traders fall by the wayside. Some investors, especially academics, believe it is impossible to time the market. Other investors, notably active traders, believe strongly in market timing.

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Reverse Merger Strategy

Use the reverse merger strategy. Buy stocks that are being used for reverse mergers. When a company that has no operations announces that it will be acquiring a private company and then changing its name to the name of the private company, it is undergoing a reverse merger.

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Insider Trading Strategy

Using the SEC definition of an insider as a director, manager or employee of the firm, you can compute the percent of stock held in a company by insiders. While it is useful to know how much stock in a firm is heldby insiders, most investment strategies are based upon changes in insider holdings. But do insiders trade often enough for this to be the basis of an investment strategy?

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The Stock Market's Great Paradox

There is another fascinating phenomenon that has been found in the early stage of all winning stocks. Refered to as "the great paradox." Most professional and amature institutional money managers are bottom buyers - they feel safer buying stocks that look cheap because they're either down a lot in price or selling near their lows. The hard-to-accept great paradox in the stock market is that what seems too high and risky to the majority usually goes higher and what seems low and cheap usually goes lower.

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