A better way to think about bear markets
The beauty of long bear and sideways market periods is that they are almost always followed by long rising market periods. The majority of the time, the longer and stronger the bear market, the longer and stronger the bull market that follows. This is how consistently successful traders think. Winning, whether it be in the markets or elsewhere, is a state of mind, as is losing. Winners see down market periods as impending opportunity. Losers put a significant amount of focus on the monetary drawdown that they suffer during down market periods and are blinded to the imminent opportunity. Often they withdraw their funds and miss the complete upturn performance when the market takes off again.
So, look upon a bear market as an opportunity—the opportunity for the market to catch its breath and to set up for the next rising market. See the lead up period to the next rising market as the period in which trades will be signalled that will take your portfolio out of drawdown and recapture what may have been lost during the drawdown period.
The mechanical methodologies that I have traded and continue to research show that every drawdown period has been followed by a new equity peak, thereby making a new equity peak a high probability outcome. By thinking from the market’s perspective, you think in probabilities, which means that you think in terms of your edge and the drawdown trading statistics will revert to the mean of the long term researched statistics of the edge. Then you should be able to consistently execute the processes of your edge without reservation or hesitation, believing that anything can happen and that you do not need to know when the next bear market will be or how long it will last.
Is this the only way to train yourself to become a successful trader?
But it is a high percentage approach that, if completed, will result in a high success rate of people who complete it because people change who they are. You become a trader rather than a market observer, a chart reader or just an analyst. Broking firms employ chart readers and analysts who are very good at their job, but they are not traders—there is a massive difference between the two.
If you want to join the discretionary ranks from the very beginning, in an attempt to become a successful trader without using a mechanical system to assist with retraining your mind, you may come out the other end as a successful trader but the probabilities are much lower and the failure rate is much higher.
Those who embark on the discretionary pathway do so mostly because they are ignorant of another way and don’t understand how their mind works or they have a large ego that urges them to take the most difficult pathway. Their big ego will take care of the outcome all on its own.
Life is a percentage game as are all sports and games that human beings play. Follow the high percentage route and resist the high ego route. Play the par five like a par five and you will, over a large sample, have a better average score than the big ego hitter that tries to play the par five like a par four and birdie it every time.
But at the end of the day, your subconscious is not tested until you play the game with your money.