The 4 Stock Market Stages That Every Trader Should Know

[Anillal]

Thanks Anil,

Discussion with you and other traders has only helped me to broaden my understanding of the market and the art of trading.

I have been guilty of many faults, and now my endeavour is to prune the negatives and and to add the positives that I learn everyday thru experience as well as other means including the discussion board.

The ultimate objective is to be as good a trader as any other, and I feel this is a lifelong lesson in learning.

Thanks to you for being part of that journey.

You are welcome sir. Pleasure is all mine as I also feel good when I come across a thoughtful gentleman like you. So likewise sir. Thanks to you as well. Hopefully the wide ranging good trading days start on monday. I wish you the best and most profitable times in the market.

This I just found on the net:

The Man Who Broke The Bank Of England
No matter how deep your pockets are, fighting the market is a losing battle. On September 16, 1992, the British government was forced to announce that it was pulling out of the European ERM and the pound dropped sharply...

Read this interesting article in full on master of master traders here. http://www.forexdictionary.com/2/731/forex-strategies/the-greatest-forex-trade-george-soros-makes-a-billion-dollars-in-a-single-trade

 

[Reggie]

Hi Anil,

The story of George Soros shorting the pound is among the top 5 trades of all times. (The first of course being Paulson' s bet against the housing market)
The trade made Soros a billion dollars and a legend in the hedge fund industry.

Though George Soros is rightly credited having made the bet, the idea behind it was that of Robert Johnson, a currency expert working with Bankers Trust.
When George Soros and his fund manager Stan Druckemiller met Robert Johnson, Robert Johnson had worked out the upside and downside risk of taking a position against the Pound.

As per his analysis, any bet against the pound would loose the fund a maximum of half a percent. The upside however would be a gain of 15-20%. The probability of the trade working out in their favour was more than 90% within a period of three months. This of course is a classical asymmetrical bet, any trader can only dream of.

George Soros instructed his fund manager Stan Druckenmiller to go for the max. Accordingly against a capital base of US$ 1 billion, the fund borrowed 10 billion dollars and the rest is history.

This trade was based purely on fundamental understanding of the market dynamics.

Lessons for traders: When the R/R ratio is asymmetrical and in your favor, you need to bet more than the normal position size. I guess this differentiates the big traders from the rest.

You are welcome sir. Pleasure is all mine as I also feel good when I come across a thoughtful gentleman like you. So likewise sir. Thanks to you as well. Hopefully the wide ranging good trading days start on monday. I wish you the best and most profitable times in the market.

This I just found on the net:



Read this interesting article in full on master of master traders here. http://www.forexdictionary.com/2/731/forex-strategies/the-greatest-forex-trade-george-soros-makes-a-billion-dollars-in-a-single-trade

 

[Anillal]

Thanks for the additional inside story behind Soros feat sir. By the way I do not know about the liquid indices but I believe when it comes to positional stocks trading whether it has symmetrical or asymmetrical R/R ratio normal step by step adding to the running positions is passe. It is like building inverted pyramid that has more chances to get toppled on one's head. The best is to enter with multiple lots and then keep getting lighter on the way. That is how the big traders make big money.

 

[Sunny1]

Just knowing these four stages are not enough ...

whats important is the signs indicating that next stage is near ... and that is tough and time consuming ...it would have been helpful if you had post these ...

also those 4 stages do not occur same way ...there fore even many experience trader cant predict next stage ,,,example ...rally is sometimes fast and quick ...sometime slow but steady not letting us know that it is rally .....some times many sudden down moves occur again not letting us that it is rallying ...

 

[Reggie]

Hi Sunny,

To answer your question the market (prices) leave a lot of cues. Its a judgement call based on many factors (is it any wonder why so many experts have divergent views???) To answer your questions a bit :

As per charts, uptrend is intact when :
Stocks/index makes higher high or lower low.
Trendline remains intact.

Weakness or trend reversal :
Markets are below 50/100/200 DMA
Chart patterns reflect double top.
Volumes are high when stocks close -ve for the day.

Other indications of market peak :
Blue chips take a back seat and mid and small caps drive the rally.
PE valuations reach historic peaks.
Advance/decline ratio tapers off.
The general public (Tom, Dinesh and Haroon) start taking interest in stocks.

Just knowing these four stages are not enough ...

whats important is the signs indicating that next stage is near ... and that is tough and time consuming ...it would have been helpful if you had post these ...

also those 4 stages do not occur same way ...there fore even many experience trader cant predict next stage ,,,example ...rally is sometimes fast and quick ...sometime slow but steady not letting us know that it is rally .....some times many sudden down moves occur again not letting us that it is rallying ...

 

[Reggie]

Correction : Should read as

Stocks/index makes higher high or higher low.

Hi Sunny,

To answer your question the market (prices) leave a lot of cues. Its a judgement call based on many factors (is it any wonder why so many experts have divergent views???) To answer your questions a bit :

As per charts, uptrend is intact when :
Stocks/index makes higher high or lower low.
Trendline remains intact.

Weakness or trend reversal :
Markets are below 50/100/200 DMA
Chart patterns reflect double top.
Volumes are high when stocks close -ve for the day.

Other indications of market peak :
Blue chips take a back seat and mid and small caps drive the rally.
PE valuations reach historic peaks.
Advance/decline ratio tapers off.
The general public (Tom, Dinesh and Haroon) start taking interest in stocks.