In follow up to yesterday’s talk about the past movements of the market, a great debate has been sparked: how low can we really go?
Anybody can just throw some number out there, but realistically what are we looking at here? I believe a good estimate to be around 6600 level, which would give us at least another 1000 point drop. Within this time, what are traders to do?
For the most part, we all have three options:
- Go long
- Go short
- Go cash and go home
Obviously everybody has their own idea of what is going to work. Everyone has different time frames, risk ability, and capital. A big problem though, is that most traders have very little experience with this specific type of market. We are not in any regular bear market. Things are not going to be better next week or in the next months. There are just too many problems with the economy for that to happen.
A common theory many traders use is to capture 70% of a move. You would like to be trading within that middle spot, and if you make enough in the middle then who cares about the tops and bottoms. Forget picking up the 15% on the top and 15% on the bottom, it doesn’t work consistently to use it as a trading strategy.
Here is a great video that details the above strategy, and also contemplates how low the dow can go.