Jul 032015

Bull Markets Climb Stairs, Bear Markets Fall Out of Bed, what the heck does that mean? It just means that, in general, if the market is climbing, it climbs more slowly, with stops and starts, and if the market is falling, it tends to fall fast and far and hard. Not always, of course, but this “rule” is one that is good to keep in mind, because it is often true.

Why You Should Know How Markets Move

Knowing how markets move, their tendency to trend fast or slow, with fits and starts or straight down, will help you in knowing when and how to enter a trade, and whether to “stay the course” or jump out with a profit quickly.

By “Market” I mean any index or instrument you might be trading. So, it applies to the S&P, to Google, to oil futures, to FOREX pairs. Let me show you an example:

How Markets Move

This is the YM (Dow Index Futures) contract, showing 5 minute bars. It is showing exchange time, so the market opens at 8:30 on this chart, opening at 16,798. You can see that it “fell out of bed” right away, taking 1/2 hour to reach an early low of 16,659, about 140 points! Look at how long the red bars are. Then it turned around and started climbing. As you can see, it took until 14:30  (5 1/2 hours) to reach 16,760, a 100 point gain.

When you see the market “falling out of bed”, you can have a bigger target, and get out quicker (as long as you are even able to enter before the move is over). When you see the market making a bullish move, you can relax a bit, and expect it to make pullbacks and smaller gains – “climbing the stairs”.

Why Do Markets Tend to Move This Way?

Why does this happen?  How markets move is dictated by human emotions, fear and greed paramount among them. Of course we analyze the market, use technical analysis, fundamental analysis, and whatever analysis we think will help predict the price movement. But, when the chips are down, and you think you are about to really lose your wad, fear is king. People jump out of their long positions by the hoards when they fear the crash.

On the other hand, when we believe the market is going to move up, we are more cool, calm and calculated, and have time to make more informed decisions. Thus the slower bull markets.

Remember the market crash as we moved into the Great Recession of 2008? Here is a monthly chart of the YM showing that:

How markets move - YM monthly

Notice that it took a little over a year to fall from nearly 13000 to about 5000. Then it took nearly 4 years to come back to its original price, with some pauses and pullbacks.

Remember, this doesn’t happen all the time! But it does happen often enough, that you should be aware of this behavior.

How markets move – this type of behavior – is common no matter the time frame of the chart. So far we’ve looked at 5 minute and monthly charts for the YM; here are two more where you see uptrends climbing stairs, and downtrends falling out of bed:

How Markets Move - AMT Daily

This stock chart is the daily AMT – American Tower Corporation. Slower up, faster down.

And here is a FOREX chart, 15 minute EURUSD:

How Markets Move - EURUSD 15 minute chart

Please comment below on your thoughts and experiences on how markets move.

Good Trading –


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