Badly Beating Bear Markets With Forex

June 22, 2022

There are so many horror stories.

So many stories of innocent investors buy-and-holding and watching their life savings dwindle away to nothing.

It’s too bad we don’t have a choice. It’s too bad the only advice out there is, “Shut up and stay the course.” Even if that course will completely ruin your financial life.

Yes, it’s too bad we’re all doomed if the markets go down.

Except we’re not.

There are so many ways to profit when markets are “bad”. (If we make money, how can a market be “bad”? I’ve always wondered that.)

This week, we’ll discuss three options in three different asset classes. First up is Forex.

People don’t generally think of Fx as a long-term investment, and I don’t know why that is. Fx allows for profit whether we go Long or Short and allows for customizable trade sizing. Anyone can trade virtually any size account in Fx. It seems kind of perfect for long-term investing.

So, what are some elements that would be beneficial during world-wide plummeting markets?

One, not much time in the market. Many of the greatest trader success biographies recall times when the hero trader stood aside during bear markets. The less we’re in the market, the less opportunity the market’s black swans can attack us.

Two, we use a system. A stoploss makes it easy to navigate in bad bear markets. We’re safe from a Bear’s biggest weapon: long, tortuous drawdowns.

Three, follow the trend. A Bear Market is one that has a nasty trend. Of course, it’s only nasty if you’re Long with no stoploss. A downtrend can be extraordinarily profitable, so a system needs to take advantage of that.

Here’s a system we’ve discussed that does all of that.

This Bollinger Band™ system trades on the GBPJPY and uses volatility breakouts to follow trends. All the details of this system can be found in my YouTube video here: https://www.youtube.com/watch?v=kOFlnvXfYVg. (There are chapters in the video and this system is discussed in “The System – Part 2” chapter.)

Now let’s go back to the worst Bear Market of our lifetimes: The financial crisis of 2008. On one hand, you have thousands of horror stories that are very sad.

On the other hand, we have our trend following Bollinger Band system. How did our system do in 2008 trading 1 lot each time?

It made over $20k. If we were trading a $20-$30k account, that’s a monster return. Not a horror story.

You can see the Equity Curve here.

And here’s how it’s hypothetically done so far in 2022:

It’s done well again during this year’s slow, bearish meltdown.

By using the combination of not-much-trading, a trading system instead of buy-and-hope, and following the trend, “Bear Markets” aren’t bearish at all.

They’re lucrative.

In the next Newsletter, we’ll look at how Futures might handle bearishness.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.