I have a confession to make. I go to bed every night and I pray for another recession. In fact, if indeed we are heading for another global recession, which I believe we are, then I have been dreaming of this moment for 3 years!
Why? Because I am a “bad guy”, right?
OK listen up. Because what I am about to tell you may shock you.
Most people only remember the 1930s depression for one thing only: the stock market crash. Well guess what? What is not commonly known or commonly taught is that the ’30s depression made some people millionaires. It is a known fact that more millionaires have been made in the 1930s depression than at any other period of time in history!
You see, in the 1930s a group of people knew how to make money in a downward market. They saw an opportunity. These guys were prepared and they took action! If you don’t believe me, just read about a guy called Jesse Livermore. Jesse Livermore made $100 million after the 1929 crash (that’s in 1930s money).
Why is the idea of making money from a recession or a depression so appealing?
The “Perfect” Market Conditions
One reason that a recession or depression is appealing to stock market or forex traders is that a recession creates the “perfect” market conditions to make money. These are conditions which most traders like me crave for.
Allow me to explain.
A recession occurs during an unstable economic climate. When markets become unstable, whether it is bad news or uncertainty, they create volatility. A volatile market often creates trending markets.
To put it quite simply, a trending market is when that market moves in a particular direction deliberately. A lot of the times, markets are just range-bound or oscillating sideways. While you can still make money in those kind of markets, for a “trend” trader that kind of choppiness can cause limitless damage to their trading accounts.
In the words of W.D. Gann: “The big money is made in the big trends.” A good trader will identify the early parts of that trend and ride it through until the trend comes to an end.
Speed is King
There is a phrase in Wall Street that says “markets will take the staircase upwards, but they ride the elevator downwards.”
In case the meaning of that phrase is lost on you, here is an example: it took fifteen years for the stock price of Bank of America (BAC) to rise from $10 to $55 (see chart). Guess how long it took for its stock price to plunge from $55 to $5? Two years! Yes, you read that correctly, two years.
Markets often move much faster downwards than they do upwards.
So let’s be honest folks. Who really wants to take a staircase?
What most people tend to be unaware of is that you can make money as the stock prices are falling. If you can apply the right strategies to make money in a downward market (more on that in upcoming posts), then heck, I am going to get inside that elevator and press the button to take me to the ground floor!
Don’t get me wrong. I am not into “get rich quick”. Far from it. I have always believed that the fastest way to go broke is to try to get rich quick. There are a lot of risks involved in trading no matter which direction you want to bet, long or short.
One of my biggest regrets is that I did not make as much money as I should have done in the crash of 2008. I did not do too badly though. I managed to capture the most of that year’s trends. But I got sucked into the “fear” and the “waiting for the news” B.S. that everybody else was getting sucked into.
I made a promise to myself: never again! That year taught me to stick to my trading plan and just trade the nice trends like a good trader.
That is exactly what I am waiting for this year and next year as well. If a global recession is heading our way, then that is an opportunity. It is an opportunity not just for me but for everybody, including you, dear reader.
Don’t get fooled by the fear of everyone else. Always remember the words of Warren Buffet: “Be fearful when others are greedy, and be greedy when others are fearful”.
Did this article help you? What are your own views on it? Let me know by leaving me a comment below, even if you disagree with me.