Introduction
Expectations and Limitations of Strategy Concepts
When there is a crash, especially when we’re talking about broad market crashes or crashes in large important assets, attention usually focuses extensively on why the crash occurred. The more interesting question to me was always how the crash occurred.
What sort of warning signs came before the big crashes. How did the price swings form on the way down. Was there any relationships between the previous swings in the uptrend and the following crash that would follow. Without any specific fundamental knowledge, were there ways to spot highs, middles and lows.
My research has led me to believe that most crashes have “Significantly predictable” elements to them. When it comes to the formation of a crash the unknowns skew more towards expected variance than randomness and the key stages of a reversing and down-trending market can be reasonably well modelled.
The idea charting patterns can predict crashes that occur due to real world events sounds dumb. It sounds dumb to me, and if I’d not noticed that myself; I can assure you the internet has informed me. If you’re thinking this sounds silly now, good! Be sceptical, but do not be a cynic. I’ll explain my case.
Some of these things are my own observations but much of them are covered by previous works, such as the Minsky bubble template (The famous bubble template that almost everyone will know of) and Ralph Elliot’s, “Elliot wave” principles (Particularly use of concepts from waves 4 and 5 and the ABC).
Expectations and Limitations:
The strategies and concepts put forward here are intended to be practical and actionable trading/hedging strategies. These are observations and rules made for the purpose of taking trades, not discussing ideas around the dinner table. We’re looking for non-subjective signals that can be picked up in real time.
The strategies to deal with bear markets have set rules and are always using things that allow time for planning before making any big decisions. They contain entry signals and exit signal. Both exiting when the market drops and exiting if the market continues to go up.
These are intended to provide the opportunity to trade/hedge profitably in a down-market, avoid buying into highs, pick good targets into a drop, avoid selling lows and have in place a logical plan to protect against emotional decisions in the event of wild swings in the market.
There’s a different between “Calling it” and having a real actionable strategy to deal with a market crash. This body of work heavily leans on the latter. It aims to provide rules that will be effective trading inside of a crash and also prevent mindlessly shorting into a market that is not reversing.
These strategies do not look at the market in terms of “Right/Wrong”. They do not attempt to have 100% win/success rate. They’re designed to have what we’d expect to be a positive trading edge in most market conditions, and be extremely effective in a full blown crash.
This stuff is not meant to be “Perfect”. It’s meant to be “Practical”.
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