“Don’t fire until you see the whites of their eyes” is a command reportedly ordered by an American officer in the Battle of Bunker Hill during the Revolutionary War. They didn’t want to waste their ammo and they wanted to be as effective as possible. So what does this mean for timing the stock market today?
Three years ago I blogged about this. As the market was then at all-time highs. Now here we are sitting at all-time highs again. And yes we have had sell-offs but each time the market shook the tree hard and then bounced right back.
Think about the sharp but brief sell-off of September-October 2014. Then the abrupt, violent sell-off of August 2015 followed by a second leg down from November 2015 to February 2016.
And there have been plenty of smaller minor pullbacks but each time the BTFD (Buy The F*&%$!* Dip) yell grew louder and louder. Mr Market is gradually getting everyone trained until it stops working.
Black Swan Event
Remember when folks were talking about these. I think they still are on people’s minds but Korean missiles, nuclear weapons, Ukraine crisis, airliners shot out of the air, terrorist attacks, on and on…nothing seems to phase the market. I blogged about possible Black Swan events.
Is anyone even talking about the South China Sea anymore? Remember the islands China was creating? and whatever happened to Ukraine? I remember wondering if on the 100 year anniversary of World War I, that another one was going to start in the same place.
3 Steps You Can Take
So back to ‘the whites of their eyes’. Timing the stock market is challenging. My point here is that we have to let the market show us it is going down. Right now it seems to be saying it is not quite ready. It’s getting close… and the rubber band is getting stretched even further. So here are 3 steps you can take to provide some protection:
- Use less capital than normal for a trade. If you normally use 15% of your trading capital maybe use 10%.
- Try to lock in some profit on your trade as soon as you can.
- Always use a stop on your trade so that losses do not get out of hand and profitable trades do not turn into losing trades.
The market never repeats exactly. So what will it do this time when it turns down in a new and vicious bear market? One thing to remember is that the 2nd wave down is the one that is usually the most brutal. Yet that 1st wave can really be tough also, think about the 1929 Crash.
For timing the stock market, most folks will be thinking of 2007-2009, because that is the most recent event. But the market will do something different this time. It never repeats exactly.