In this article:

• Bear market continues its summer pace
• Traders must learn to cut losses
• Continuous learning builds strong skills

People often ask professional traders, “Do you have any good trading stories?”

The answer is, “How much time do you have?”

John Carter, Founder of Simpler Trading and author of Mastering The Trade, sat down to swap stories and insights with Ashton Noland, author, influencer, and professional trader.

Take the time to read what these two pros shared about trading in this bear market.

Market holding high bearish sentiment

John shared within the Simpler Trading community what he was seeing in the market Tuesday ahead of key economic reports set for release.

John highlighted how he has never seen such a high level of bearish sentiment with such a strong influence throughout the market.

He is watching market signals with “all the necessary recipes” for the market to pull back. He is specifically keeping an eye on a reversion to the mean in the S&P 500 (SPX) that could push the index back to 4,000. (The index appears to be stalled by a wall near 4,150.)

This drop would be a setback for retail traders waiting for a push higher, yet he doesn’t see the market “puking” severely.

John noted that the S&P 500 is performing better compared to the Nasdaq which has been weighed down by stumbles in technology stocks, i.e. NVIDIA (NVDA) this week announced expectations of poor revenue numbers for its upcoming earnings report.

When the market starts going down, John will work the indexes as he limits the number of trades in action at any given time. He prefers fewer trades overall versus having trades on multiple individual stocks and having to watch more moving parts when the market is this volatile.

John, like most retail traders, is watching the economic numbers set for release on Wednesday and Thursday, but isn’t holding his breath for the market to rally significantly.

He’s also watching the Chicago Board Of Exchange (CBOE) Volatility Index (VIX). If the VIX breaks below 20, there is the possibility of the market rallying higher and the idea the S&P 500 could jump to 4,300 makes sense. Still, the VIX may just as likely spur a move back to the mean.

The VIX jumped to 21.77 on Tuesday, up 2.25%. The VIX – considered the “fear” index – anticipates market volatility over the next 30 days. A level above 20 is considered high volatility – more fear in the market.

In the market today, the Dow closed at 32,774.41 points to dip .18% (dropping just 58 points on the day). The Nasdaq dropped to 12,493.93 points for a 1.19% tumble while the S&P 500 fell .42% to 4,122.47 points.

Now, take a look at the discussion between John and Ashton.

A trader’s job: cut losing trades

Follow along with this recent sit-down session with John and Ashton, an accomplished trader who took on the role of “student” in their discussion.

The two pros reminisced about how fast the year has sailed by with all the ups, downs, twists, and turns in the stock market.

Ashton: How did this year go by so fast?

John: This year has moved fast. There are so many different kinds of markets and the faster we can make sure we’re not assuming what is going to happen next and get dialed into the current conditions then it makes it more graceful to go through times like this with all the crazy things that are happening.

When we get into a market where a lot of people have never seen that action before it gets pretty crazy. Trading comes down to, no matter what’s happening,how we are able to separate ourselves from what we think is going to happen to just being a trader, following our rules, etc.

Every day you have to be in a trading state of mind – looking at probabilities and thinking, “I don’t know what’s going to happen next.” The moment you forget that is the moment you slide to where it’s so painful that you have to figure out what you’re doing wrong.

Ashton: Newer traders who maybe have not been around, maybe entered the market in 2020, it got to the point where a lot of people would enter a trade and there really wasn’t much conversation about what was happening or the strategy behind it.

Last time we spoke, you said this, and I use it all the time: “How do you cut losses?” That is the essence of a good trader versus a not-so-good trader. The content of a good trader is how do you react when the trade doesn’t go in your favor? Can you finesse that trade to possibly turn that loser into a winner or mitigate the loss.

John: The moment you think you’re “there,” the market is just rearing back to pop you in the face. If you go into the next trade carrying the weight of bad times, that next trade will never be good enough.

The job of a trader is to recognize a losing trade and cut it loose. It’s the hardest, simplest thing you can do as a trader.

John Carter

Be comfortable while uncomfortable – manage emotions

(Both traders noted the importance of managing emotions, i.e. handling the psychology of trading.)

Ashton: In trading communities, people have started to drop off saying they’ll wait for the market to calm down. This (current market) is the kind of market you want to be in.

Going through a market like this, even if you just “get to the other side” and come out of this alive, what you just learned can put you ahead of your original schedule by 10-fold.

Ashton Noland

John: You have to learn to be comfortable while being uncomfortable. Manage the emotions.

Trading is a skill. In this market, if you can focus on (gaining) 1% per day, which isn’t exciting, but 1% a day over the course of a year is 10x. That could 10x your account. There is no guarantee of exactly gaining 1% per day, because some days don’t work.

The point is that if you grind it out, you can make gains. While 1% may be aggressive with stocks or other assets, there are so many things you can do with options that it could become a reality. The focus turns to instead of making big trades to doing more frequent, smaller trades to grind it out.

Where’s the next stock market pattern?

(Both traders continuously look for patterns in the market.)

Ashton: The more experienced you become as a trader, the more you believe there are no coincidences in the market. You see the same things repeatedly. I’ve noticed, kind of a funny pattern, is in the VIX. The last few times that it has spiked, the spike began on a Thursday every single time.

John: Good observation.My favorite kind of trading is to put on a trade and hold onto it for two to four weeks, more of a swing trade, typically it’s easier in an uptrending market. I’m fine with it in a downtrending market as well, but until recently this market has been difficult for that.

In this market I love the zero days to expiration (SPX) options play, typically in the last hour.

(Zero Days To Expiration (ODTE) options plays are taken on the last day of expiration of an options contract. These setups are designed to limit risk because the contract is closed at the end of the day – the SPX settles in cash – with no overnight exposure and no worry about having shares “assigned” to the trading account.)

Traders should always be learning

(Even pro traders are always learning and adjusting to what the market offers. Ashton has been actively trading since 2015 and John has been trading for more than 25 years.)

Ashton: Trading is hard enough, especially when starting out. Enjoy the process and let it happen organically without focusing on the end result, i.e. “becoming a full-time trader in six months” which adds more pressure. Make sure you’re learning, if not daily every week.

Have an honest discussion with yourself. What if I have a down week? What if I have a down month? It happens. Am I still in a good enough position to go pay my cell phone bill or water bill or pay for groceries for my family? Those questions are not necessarily easy to answer for each and every person.

John: (He encouraged traders to have specific goals when trading.) Consider using a brokerage where you can wire out so much money automatically every week. Now you have to start treating it like a business versus shooting for a (big play).

Wiring out money makes trading real, it’s not some pie-in-the-sky dream. You’re going to put the skills together to generate this much a week. But if I have a down week, the wire still comes out.

The goal of wiring out money is so you don’t fall into the psychological traps of trading, i.e. blocking/stalling or too much euphoria that leads to bad decisions. Money messes with your mind.

Trade the amount of money you’re comfortable with, wire the money out, and go do something tangible with it.

Traders are geniuses in hindsight

John added a few parting insights for traders facing the uncertainty of the market.

“Unfortunately, I would call this kind of market more work for less reward,” John said. “It’s a good way to cut your teeth on trading until you get more of a lasting trend whether it’s up or down.

“We’re all geniuses in hindsight. You keep doing what’s working until it stops working and then you make your tweaks accordingly.”

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