When Buy The Dip Becomes, "Sell the Rally"

Markets Have A Way Of Drawing Us In

In every market there comes a day when it runs out of steam and tops out. That is when, in this case, "Buy The Dip becomes, Sell the Rally" or better yet maybe "get the hell out of the market." The mistakes people make while playing the investment game are too many to list, and for many market players, the game often ends in tears. Few of us possess the self-discipline required to follow the plans we previously laid out when shit actually hits the fan. Whether it is a slow change in market sediment that leaves us like the proverbial frog in a pot as the water temperature continues to rise or total panic with everyone rushing to the exit losses are hard to take.

Many of us really long time traders don't really love the market unless we just happen to be, shall we say, a natural trader, and there are really very few of those. These are the people that can often sense a change in the air and always seem to be on the right side of a trade. I'm not talking about stock brokers but rather traders. I have never met a broker that could call the market. If someone was really that good they would most likely be in the market themselves and not babysitting people who do not understand that the financial markets whether we are talking stocks, bonds, commodities or even options are cruel places that should be avoided.

Markets Climb A Wall Of Worry Then Fall Like A Stone

Without a doubt the markets are alluring and the chance to run with the big dogs can suck you in as well as the thought of picking up some easy money. This is why so many of us keep coming back into markets that seem to be rigged against us, maybe its stupidity, hope, tenacity, or because it is the hardest game in town and we think if we play it long enough we will finally be able to master it.

A great number of witty sayings have grown out of the woes people experience when they roll the dice at the casinos on Wall Street. Things like, "bulls make money, bears make money, pigs get slaughtered" or, Do you know how you make a small fortune on Wall Street? the answer is, start with a big one. We also have the "trading systems" we have systems based on chart trendlines, timing market cycles, studying market fundamentals, and everything in between. Many books have been written on the subject of making money in the markets and we have market gurus that will make the calls for us, however, it is not uncommon for many of these to remind us when they were right but forget when they were wrong and we paid the price.

When Buy The Dip Becomes, "Sell the Rally"

While things can be going well and a trader making money it does not take long to lose years of profit and a great deal more when things turn south. Even traders that have cautiously diversified their portfolio may find they suffer greatly during such an event. It is said markets climb a wall of worry as they climb higher but history shows that when they decline the rate of the decline is often fast and harsh, that is why they call such a move a crash. The pain is often increased by the fact many traders leverage their position by playing on margin which allows them to maximize the number of shares they control.

Plans can go awry when you are in the market and when they do it seems that bad luck lingers around every corner just waiting to strike. When all is said and done more lives and fortunes have been destroyed by markets than made. The markets giveth and the markets taketh away but it tends to taketh faster. This means simply riding it out may be easier said than done. Many of us who have entered this arena and tried to catch a falling knife (pick a bottom in a falling market) will tell you it wasn't our finest moment. I'm reminded of that line from a song, "What's to painful to remember we simply try to forget."

I'm not arrogant enough to declare we are at the point where I guarantee the market has put in its top, however, as I have forever and a day, I urge extreme caution. Even the idea that we can protect ourselves by being diversified has a way of proving to be a myth when Murphy's law that "everything that can go wrong will" takes effect. We are in uncharted waters and how this market plays out we will not know until afterward, and then we will ask, why didn't I see this coming? The bottom-line here is that we don't want to be that guy.



Footnote; I have been bearish and wrong about how far this market could rally for a long, long time. The fact that a broken clock is right at least once a day is not something that I find reassuring. Several articles that relate to the post above are listed below.
    http://Stock Buybacks Driving Market-Where It Might Take Us!html
    http://Thoughts On This Time Is Different.html
    http://Flash Crash On Steroids Is Possible .html
    http://Capital Preservation Is Job One.html