Trading mistakes: blindly buying into a bull market

(Video summary)

Blindly buying into a bull market

In this video series about trading mistakes, the focus is on a common error made by new traders: blindly purchasing stocks when the market is on an upward trend.

Senior market analyst Axel Rudolf explains why this can be a risky move and provides some helpful insights. Axel uses the example of the S&P 500 and shows a chart that illustrates a bear market from 2000 to 2003. He highlights how, within this bear market, there were two instances where the market experienced significant increases of over 20%. However, investors who bought during those times ultimately faced declines in the market.

No one-size-fits-all answer

Axel stresses the importance of not making decisions based solely on price percentages but instead analysing the chart, considering factors like volatility and momentum. When asked if there are specific indicators to consider before making a trading decision, Axel explains that there is no one-size-fits-all answer. However, he suggests a few indicators that can be useful. Some traders use Elliott Wave Theory, which involves identifying corrective moves against the main trend. In a bear market, this can indicate a potential continuation of the downside.

Other indicators to consider include declining momentum and overbought signals. Additionally, Axel mentions the usefulness of CNN's fear and greed index. If this index indicates extreme greed, it often precedes a significant correction.

The main takeaway from this video is that traders should exercise caution and avoid blindly buying into a bull market solely based on price increases. It is important to analyse the chart, evaluate indicators, and consider the overall market conditions before making well-informed trading decisions. By doing so, traders can avoid potential pitfalls and make smarter investment choices.