78 Responses to “Stock Market Crash | The Most Important Mistake You Will Make In A Falling Market”

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  1. John Burton

    Your posts, commentary, and videos are actually revealing, exceedingly useful and enlightening. Thanks.

  2. Debbie

    As I am learning from the reading I am doing, you need to have several indicators, momentum, MACD etc and the more you have giving you a positive sign the more likely you are to predict a trend change and this will put you in a position to decide to buy, where to put your exit strategy and to finally exit. It would have been interesting to see the other factors, trendlines etc you used with these prices.

  3. Debbie – you are right. But be careful about extensive use of indicators. They are not holy grails – they are just tools. use them with a proper trading plan. Keep it simple.

  4. Thanks john. Glad you like them

  5. ali-akber

    Useful for a novice like me. An eye opener not to allow the primitive desire of fear and greed overcome rationality. Thanks for the post.

  6. Alberto

    How can we know when a stock is really a bargain?? Thank you for your post, are very didactic

  7. Richard Calhoun

    How do you view gilts as an investment now whilst the equity market is in such turmoil??

  8. Sorry Richard – Gilts is not my area of expertise. Thank you for your input though.

  9. bigpdogg8

    Thanks for the post very accurate about the lloyds tsb situation. Banks run the world thats why the banks got the little government to buy shares at 70p fooling the public that if the government bought lloyds shares then the must be a good investment. I know so many people who are holding lloyds shares losing time oh and money.

    Great work keep it up

  10. good explaining of fear & greed. Thanks!

  11. Alena

    Thank you for your interesting article! I would like to ask you one additional question – what are positive signs of strength the stock or commodity needs to show some before we decide to buy it? Thank you for your answer!

  12. Frank

    A trader who speaks the truth and admits his losses, it’s quite refreshing!

    Keep it up!

    Thanks Alessio

    Frank
    Sydney

  13. Thanks Frank – it pays to be honest – specially in trading. Best wishes, Alessio

  14. WAChad

    If 70% of all trades on the US stock exchange are Automated trades driven by computers in microseconds, then the concept that that market is ruled by Fear & Greed only applies 30% of the time. The other 70% of the time …its driven by the Greed of the people who write the trading algorithms.

    Trading systems exist , people use them and follow their signals to remove human emotions from the trading to limit losses & let profits run, but few people can take instructions from a computer ( its insulting to human intelligence because people always know better ) & no trading system is perfect ( unless you are its creator and your trying to sell it ).

    Heres my solution: Ban: short selling, all derivatives, all forms of equity leverage, automated trading, day trading. Then the stock market might actually be of benefit to humanity.

  15. Volkan

    Thank you for sharing your informative experience.
    What if deciding to buy a stock which already is in a rising trend? What can you say about fear and greed in this situation?
    All the best

  16. What you just explained is Jim Cramer’s strategy! He always tells people to buy high and sell low on his TV show.

    A very recent example: He said to buy NFLX at 280-300 and sell at 125.

    Some people love to lose money

  17. Erick J

    really refreshing info for the markets based on personal experiences; but for s simple husband like me; what do you use to know the momentum to buy an specific stock; i read your article in forbes and your brutally honest interview in bbc
    thanks,

  18. Chad – thanks for your informative comment. I respectfully disagree with you. We need short-selling for at least 3 reasons:
    (1) It creates more liquidity and activity in the market and
    (2) the short-sellers are usually the first ones who jump in and buy stocks when they are falling to cover their short positions. This creates a bottom in the market, thus enticing the buyers (who had been jittery about entering the market) to also step in and buy.
    (3) Whenever a ban on short-selling has been made on the markets, that market has fallen even deeper (e.g. 2008).

  19. Daniel

    It takes some doing to recall the climate of insanity and greed in the year 2000. The Nasdaq hit 5,000 that year (today it is at 2,415). People literally were expecting to multiply their money in a few months on any stock that was tech related. I put a pile of cash in a tech stock at $40 (yes, fear of missing out ) and within a few months it was under $5. The only good news was I didn’t get greedy and buy it again on the way down.

    It was a very important lesson to learn though and I managed to avoid the lead up to the carnage of 2008, when pundits like Ben Stein were saying things like ‘buy now, If these financial stocks get any cheaper they will be giving them away in cereal boxes’…

  20. massimiliano

    are u italian? or speak italian language?

  21. Thanks Erick. watch out for my upcoming posts.

  22. Interesting. I like Jim Cramer. I know he sometimes gets it wrong but who doesn’t? It takes guts to stick your neck out and say well, this is what I am going to do. Thanks for commenting.

  23. Very good question Volkan. I would still want to trade that trend – BUT the danger is that that trend could be ending soon and that the upside (or downside) could be limited. The momentum of that trend could be coming to an end. I am going to comment on these issues in upcoming blogs. Keep reading. Thanks.

  24. lisandro

    I am from Argentina. thank you . I learn a lot with your article but most important thank you because you tell the truth even though it hurts. I am keeping reading your articles. I am an Industrial Engineer and a I am coursing a MBA in Finances.

  25. Sawraj Cheema

    Very nice simple article Alessio. Some many people in London are heading towards Silver. Some Pundits saying its heading towards crash down to $22-24. Some experts saying fundamentals are in its favor, it will go in three digits. Whats your take on that. Thanks

  26. Joey

    Made some of these very same mistakes during the 2008 crash!

    Thank you for your insights! They are greatly appreciated!

    Keep them coming!

    Joey

  27. I say that opinions can be dangerous things. I believe silver has some good long term potentials – until we see otherwise. If silver takes out its lows at $26.15 and closes below it, then I am going to get bearish on it. Until then, I am looking for long setups. Personally, I wouldn’t worry too much about the fundamentals – price is KEY. Thanks for your input.

  28. thanks Lisandro for commenting. I try my best. cheers.

  29. Rod

    Just a big THANKYOU for your honesty and `jaw-dropping` effect on not only the BBC! Hope to be seeing you on The Keiser Report very soon!

  30. Ken

    Hi, Alessio. I come from Hong Kong. I have the similar experience as yours during the market surge in 2007 and got lost big……

    Yes. I totally agree with you that we should NOT catch the falling knife and should ONLY buy stocks when there are signs they are turning UP.

    This is a nice blog. Keep it up.

  31. James

    This post has been a real eye opener for me and I look forward to reading more of your advice.

    Thanks for sharing

  32. martin

    Alessio surely the wish move with those Exodus shares would have
    been to sell in march 2000 , taking a $25 per share profit. Better to
    take a small profit than watch your money disappear . The share price
    didn’t turn downwards overnight so weren’t there signals telling you
    that maybe you should sell ? ( i’m a novice at all of this hence the query ).

    cheers , Martin

  33. Matt

    Dear Alessio, massive respect to you for your honesty and these articles.
    I am concerned with this house of cards / fiat monetary system collapsing.
    If it gets real bad there could be a run on the banks? I am considering taking savings out, however am also a newbie trader, do you think trading accounts could be at risk too (other than normal risk of trading of course!)?
    Thanks for your time and all the best.

  34. i just wana say thank you for your honesty and waking me up at a very right time, not just because of your interveiw with the BBC which i watch alot but because of the above article.
    i started trading for myself in early 2008 and was making around £10000 a week (i had well over £800K plus TD WATER HOUSE gave me another £500k to invest, but i had to settle the £500K back in 25 working days or T25 as they call them here in the UK.

    cut the story short, by early march 2009 i lost every thing i had and went bankrupt because i had to pay back TD’s money which i had invested, i had no money to pay back and they sold my share took thier own money. nothing left and i still owed them 80K, which i could not pay.

    now i am buying the same shares, RBS and LLOYDS and am making some profit but and that’s a big BUT, i will wait and see what happens, i must be patient this time.
    keep up the good job and thank you

  35. Conor Headon

    Alessio, very refreshing commentary on the dynamics of the Market on your BBC interview. What are you suggesting to short -individual stocks or stock indices themselves?
    Thanks for sharing your views and in plain simple uncomplicated English. A first!
    Regards
    Conor.

  36. Maria Petrova

    You ROCKED MY WORLD with that BBC interview. Ignore all the haters — they’re projecting on you. It was clear that your message was one of warning and empowerment for everyone.

    I’m a total beginner at this and THANK YOU for your site — I look forward to learning from you. I’d be willing to pay a monthly membership even. TEACH ME! I’m in NYC and would so appreciate if you do an article on “what to do with $10-20K if you’re a beginner in investing in the USA.”

    Btw this guy is a great web designer http://coda.co.za/bio Did these 2 sites: ericwhitacre.com and hilaplitmann.com. He can make it so your answers here appear below whichever comment they are a response to.

    THANK YOU for being who you are and for your noble heart. I look forward to reading everything here.

  37. Hi Conor – personally I prefer shorting both individual stocks and the index (but using futures). If I was going to short an index like the Dow Jones or the S&Ps, then I would do it using “spreadbetting” or Stock Index futures (Dow Jones e-mini futures). You can do this on Tradestation.

  38. Zaher – that is a very interesting and insightful story. I thank you for sharing it with me. I think a lot of people can learn from your experience and learning lesson – the risks involved in trading are enormous. I am glad to hear it has not stifled your passion for trading. Good for you my friend. Keep it up and happy trading! Maybe you can write an article for me about your story and I will post it on my blog as a contributor (I’ll give you full credit).

  39. That’s a good point Matt. Listen, if banks are not safe, then no particular trading account is safe either. I would take extreme caution, whatever you do. Best wishes to you.

  40. Martin that is a good point. The problem is that just like a lot of traders and investors out there (the 85%) I had absolutely no exit strategy. Remember, everyone is a genius in hindsight. That is why it is essential that you have a detailed plan as to exactly how you will decide when to sell or exit the market. (psychologically, most amateur investors hold on to a stock because they feel it is going to rise much higher but they lose all objectivity when the stock goes into a loss).

  41. Thanks Ken. I’ve been to Hong Kong – it is an awesome place. I look forward to going back. Thanks for reading and commenting on my post.

  42. Thanks Joey. I am sure it was a learning experience for you. Take care.

  43. joe

    thanks alessio for the info. i really wish more people in your position would educate the amatures about all the crooks on wall street and take control of there financial future. most rely way to much that everything is gonna be ok. there is so much oppertunity in these markets and people are just watching it go by. i guess its better for us little guys but still sad to see everyone so blinded by the facts

  44. Felipe Weber

    Hey Alessio, one thing that we can also be watching very closely, is the enterprise’s market, news, changes in command,be really close to, beyond these papers, the day by day of the enterprises….those things are too a good and an important way to make a “smart money”. But always being carefull with speculations and “purchased news”, like we have a case here in Brazil lately, called: the Mundial case. I want to be a trade too, but last month I subscribe on a brokerage, and because I have some “debts” ahahahaha in my name with other banks, they denied my cadastre…ahahaha……In UK, if a person have debts in name, cannot invest?..but I’m not discouraged, I’ll be a trader someday…ahahaha..I’m reading more and more about all stock market, that’s why I found you in BBC, great fan of you and your real way to talk, man! Hugs…..

  45. Simon S.

    There are some more “bad” words next to greed and fear. Haughtiness and impatience.

    In 1997 I made some fine trades. First I traded some US Small Cap shares. The gains profits were good but I wanted faster “results”. So I traded warrants (Index and shares). This went quite well too. But the markets were great in early 1997 so most traders did well.

    I made it form 5’000 Swiss Francs to 50’000 SFR in just 6 months. I thought that I could quit my job and become a full time “home day-trader”.

    In early October 1997 I was absolutely sure that a downwards correction was about to come very soon. So I invested 50% of my trading capital into a PUT Warrant. Very short term. The crash didn’t come. The Warrants expired with 100% loss.

    A a good friend at “Credit Suisse” told me that the he and his was sure that there is a quick uptrend is about to come. After the recent losses I wanted to quickliy regain some money. I reinvested the all my money in a CALL Warrant. The same day the SMI (Swiss Market Index) dropped 15%. Two days later the Warrants expired, 100% loss.

    All the money was lost in just 7 days. As a result of stupidity, fear, greed, impatience and haugthiness (don’t know if thats the correct word).

  46. Maria – thank you for your wonderful comment. I really appreciate it. I can see that you see the good in people. That is a noble talent. Well done to you.

  47. Steven S

    Alessio – Would be interesting for all concerned if you could run a more extensive Bio of your life and times, so to speak, as a trader etc.

    How did you start? where did you work before you became an independant? have you/do you trade other peoples money of just your own?

    Be a perfect time for you to get your real story out before the twisted… err twist it to suit their agendas… if you catch my drift ;)

    Best of British btw!

  48. Mike

    Alessio do you think maybe you’ve just shown your poker hands to the world?

    Loved the interview but now you’ve challenged the proverbial smart money like Goldman to prop up the market

  49. C H Ingoldby

    Mr Rastani, your ideas and insights are fascinating, thank you for sharing them.

    With regard to the importance of share price trends and the dangers of trying to catch a falling knife, don’t you think that an overly pessimistic approach to shares with falling prices can lead to missing bargains? I remember that several fortunes were made by people buying stocks in the early 30’s at ludicrously low levels when everyone else was selling.

    At the moment there are several smaller natural resource companies that are looking very undervalued because of panic on the markets, even if their share prices fall some more in the short term, the fundamentals look so good that they seem a real buying opportunity. Do you really think that market trends trump fundamentals?

  50. dee

    great article…espcially i did same mistake in 2008. I invested 40k in the stock market in 2007 and it increased to 160k by 2008 and I knew most of the stocks were over-valued but I kept them as market was increasing day by day especially in the emerging markets.I knew in Jan, 2008 by my trading precitions that market will fall, but I decided to follow the sentiments of the people.Another reason, I dnt sell was due to the fact that I was gng back to univ in sept, so i thought if i sell stocks after march i will save more tax as i will be student.But markets crashed and my portflio cme to 30 k within 3 days.But now i just buy and sell shares when i get good profit.But to be honest, you need to risk of buying shares of a firm especially like Barclays when shares fall by doing analysis on various factors.In additon, markets cannot rise..its more like zig zag …2-3 years it will rise and then it wil fall..I guess best strategy is to wait when markets crash badly and invest in diversified porfolio.

  51. dgmoocher

    ha. HAH! I bought HIGH and sold low (to protect myself) after losing exactly half the value of my life savings. After deciding to fire my financial advisor I bought a few books, made a lot more mistakes, and got smarter. It’s hard work and time. xD

  52. Anshuman

    Hi Alessio,

    What is your view on gold? I heard your interview in bbc radio but the anchor cut you off when you were saying how gold could behave .

    I am from India and i invested in a Alternative enery company(windmill) when it was trading at Rs 400 and then averaged out when the price was 101 and sold out when the price was Rs 62 after 2.5 years. After i cut my losses i lost around 70% of my investment, it came out that the company was facing huge loss of customer orders due to cracks in turbines and blades. today its tradin at Rs 37. Price of a stock changes first and news comes later.

    I am not a trader. A lot of players are bullish on precious metals so i would like to know if silver goes below 26.15 why would you stay bearish and for how long…??

    Because the money printing is going on and long term precious metals, in my opinion precious metals should rise.

    Also, please elaborate on hedging strategies that could be used to make money in the down market. I am studying put options now after seeing ur interview.:)) One query on them, what timeframe for expiry would you suggest for buying a put option. Is it better to buy puts on indexes or on stocks?

    And thank you very much for the guidance that you provide..

    With Regards,
    Anshuman, India

  53. Well, it’s not always a wrong thought to busey cheaper and sell higher. But the fundamental reasons to be right. Look at gold and silver, ik bought them when they crashed, because we all know that the currency crisis is going to be much worse. So it’s not just buying because it’s cheaper, but also because you’ve got to have a view on something.

  54. Mark, by all means use fundamentals if it helps you. But the problem with just using fundamentals and ignoring techncials is that it is similar to diagnosing a patient without taking his/her temperature. If the stock or commodity is falling, it does not matter if the fundamentals are good. That stock may well continue falling and falling until it causes you nothing but pain. But I appreciate your comment.

  55. Anshuman – firstly in regards Put options, I think it is best if I direct you to a really good book on that one which is “Options Made Easy” by G. Cohen which is still the leading authority on options. I will produce more articles on this soon. In regards gold and silver, we have to be cautious. At the moment both these metals are near support and if we do see some signs that they are about to reverse and head upwards, then yes I am going to get bullish on them. I would recommend building your positions slowly as that market turns in your favour (i.e. don’t suddenly buy a whole bunch of gold at once).

  56. Dgardner – I am sure it was a learning experience for you and having made similar mistakes years ago myself, we can all become better at what we do. Happy trading!

  57. Thanks for sharing this with me Deepak. As long as you have learn something from that, I am sure you’ve come out of it much stronger. Good for you.

  58. Simon – you’ve hit the nail on the head. The desire for making quick rewards can be extremely dangerous and which is why most traders like me spend a lot of time working on our psychology and discipline. Thanks for your comment. I am glad you shared your story with us.

  59. CH – yes I do consider technicals and price to take precedence over fundamentals. For me price is pure. It does not lie. However, anyone can fiddle things around with the fundamentals (p/e ratios and earnings reports etc.). Also I would focus on risks first before rewards. Thanks for commenting

  60. Yes, i agree. I always use technicals for timing and trends. If something is fundamental and technical strong, only then I’ll buy. Thats why i am shorting the markets, just like you ;-)

  61. Paul

    I think I”m more confused as to what to do now than before. One thing I do agree on is we’re heading for a dip/crash.

    for those of us w/401ks, is now the time to move the funds to more secure bond funds?
    for those of us with a few stocks, is now the time to buy some treasury bills?
    for those of us with a few thousand to invest, is now the time to buy dollars?

    I believe the answer to those questions is YES! what say you?

    Thanks!
    Paul

  62. Rebecca

    Hi Alessio!
    Thanks for explaining. I then want to ask you one simple question: I have all my stocks still in the stockmarket in Israel , and one in Israel (Nobel Energy). Should I sell to not loose it all in your opinion? The money I have there is all I have got. I guess I was greedy, like you said:)

    Thank you for a good website!

  63. Donald Maines

    Allesio, please invest some monies I have as Socrates said “I am looking for an honest man”. . Thanks, Don Maines

  64. K

    So are you suggesting that, someone with cash available to invest.. that they should hold it in cash for the foreseeable future?

  65. Rebecca

    Allesio, thanks for your sharing your insite. Everything I have is in a money market fund. I have talked with two different advisors over the last year. Currently, one is telling me to invest in a mix of mostly corporate bond funds including a precious metal fund. Another advisor said don’t do anything right know, stay in cash. I am retired and living on a fixed income and need some income. The trouble is that I don’t know who to trust anymore or what I should do. Do you think corporate bond funds will survive either a depression or a recession? I was told they would. I loved hearing how to sell short, that is something the financial advisors will not discuss with me.

  66. Christian

    Apparently, buying cheap is not a good strategy, But, in which cases is it actually a good idea to buy stocks when they are cheap? And, if doing it, when is it time to buy stocks without the risk of buying them at a far to expensive price?

  67. Christian

    Almost forgot, thank you for a very useful and interesting blog,you have made me starting to think in new ways. Obviously, based on this post, I have already made a mistake but always good to learn strategies about to handle this sort of issues.
    Regards

  68. Nowell

    Yes I have experience the FEAR/GREED factor, followed a teaser on
    AER Energy Resources – AERN lost a little money but still holding
    not much left in it to sell.

  69. Thanks Nowell. What does not kill us makes us stronger I guess. All a learning lesson. Cheers.

  70. The stock market is such a casino nowadays that it’s nice to find refuge in more reliable returns of Volatile yes, but not nearly as bad as equities.

  71. Hi Ashley – you are correct. Unfortunately a lot of people still use the markets a bit like a casino. That is not the way it should be (which is why 90% of traders lose). I am guessing you trade options?

  72. Wonderful, I agree with you on not getting conned with the buy low sell high crap. I do only commodities now after having been in stocks/shares in India for nearly 25 years. I do mostly day trading, and generally make a profit, bec I almost never carry anything over to the next day, I don’t find anything cheap or costly, it is just a notional feeling for me. What matters for me is whether the markets are headed up or down and which side I am on. I keep juggling between bullish/bearish depending on where the market is headed. That is it! Thanks for the wonderful blog Alessio, keep it going.

  73. mark c

    Hey Rastiani you didnt read the whole article , She said “Be prepared. If we are indeed heading for another stock market crash, and I believe we are, then you need to take control of your emotions right now!