What I Learned Trading Through Four Bear Markets

On Tuesday June 14, CNBC declared the Pandemic Bull dead and announced that a new Bear market has begun. Two questions came to mind.

- Kenneth Reid

www.daytradingpsychology.com

First, is this really news?

If you were trading stocks like Roblox (RBLX) or NIO (NIO) or Palantir (PLTR) in 2021, your Bear market started 7 months ago. Tech darlings with little or no earnings were the first soldiers to fall... and they fell hard.

Second, if you are an active trader, does market direction really matter? Isn't our job simply to find ways to take advantage of whatever the market presents and adapt to its changing moods?

True... yet each Bear Market has a different volatililty signature, and this can matter even for day traders. This chart shows the VIX (aka the "Fear Index") over the last four Bear markets.

The VIX measures the implied volatility of SPX options over the next 30 days. The higher the reading, the greater the fear. A spike above the red zone on this chart means panic.

During the Dot Com crash, the VIX spiked into the 40's. At the time, I had just been hired as the head trader for a large financial newsletter and frankly, I was worried.

I knew a tsunami was coming, but I didn't know exactly what to expect. No one did. It was the first Bear market in history for a new generation of internet-based traders, including me.