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Friday Feature: When Markets Attack!

October 16, 2020

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As a trader, have you ever given any thought to those crazy old wall street sayings that seem to pop up from time to time? You know things like “Buy the Dip and Sell the Rip!” or “You’ll never go broke taking profits!” I have lots of these sayings over the course of my trading career and I had always wondered when I hear them where they were coming from, what was the meaning behind them? Obviously, there had to be something that had happened and probably many times to many different traders to come up with a saying that has permeated the consciousness of the trading community?

Well, for this weeks Friday Feature I want to delve into another such item from Wall Street and what its possible meaning could be and more importantly what it could possbily mean to us?

I am referring to the use of the BULL and the BEAR in the folklore of trading. You may ask yourself why did they choose to use those two animals to symbolize the movement of markets? I have heard a few different reasons as to why they were chosen but I only know of one that makes the most sense and can give us some insight into why they really choose these two symbols.

The explantion I have heard as to why we have the BULL and the BEAR is in the way that each animal is said to attack. For example, if you have ever watched a bull fight you will see that the Bull runs towards the target and the lowers its horns and violently thrusts upward, hence bullish meaning an upward movement. This makes sense to me.

Now, what about the BEAR, well if you have ever seen a bear attack they are very large and tall creatures and tend to use their claws to swipe downward on their prey. hence the Bearish trend is downward movement. You see Wall Street is not as cryptic as they would have you believe.

So, what exactly does this mean to us as traders? Well, I am certain it means a great many things to a great many people but the one thing that comes to my mind is what do I do when either the BULLS or the BEARS attack? One attacks from the top and the other attacks from the bottom? Is there any way to avoid getting gored or clawed? Well, I have given this some deep thought and I have come up with only one thing and that is when the claws or the horns come for you don’t be in their path. It would seem to me that the easiest way to not take any damage is to not be hit in the first place.

So, how can this be accomplished in your trading? These three items come to mind.

  1. Be flexible. Don’t get married to any one position. Be fluid enough to make the changes required when either of our foes comes a calling.
  2. Keep a keen eye on them both. Be sure to build into your daily routine a way to know which animal can cause your positions the most damage.
  3. Always know your portfolio DELTA. If your portfolio DELTA is bullish and the BEARS come calling you will need to know exactly how you will neutralize that delta and doing this in effect is like not being there when the Bear paw swipes at you. The same goes for the reverse, if your portfolio has a bearish tilt and the BULLS come calling you will need to avoid those horns and the best way to do that is to change that DELTA or in other words, get out the way!

Coach “Old Money” Holmes

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