Bull vs. Bear: Why This Trading Pro Says You Should Always Bet on the Bull (Long Term)

As a seasoned crypto investor with over a decade of market experience, I wholeheartedly agree with Alex Krüger’s insights. Having witnessed numerous bull and bear markets, I can attest to the power of contrarian trading and the importance of understanding market dynamics.

On August 7th, well-known trader and economist Alex Krüger offered insightful guidance for novice traders on social media platform X (previously known as Twitter). His wisdom is applicable to both stock and cryptocurrency markets. Here’s a summary of his advice, with explanations of essential concepts:

1. The Power of Contrarian Trading

Krüger underscores the possible financial gains from going against popular opinion in trades. Often referred to as ‘contrarian trading’, this technique entails taking actions contrary to what many market players are doing. Yet, he stresses that the outcome of your contrarian move greatly influences its success.

2. Long vs. Short: Understanding Market Positions

In trading, two main strategies exist:

Going Long: Buying an asset expecting its price to rise.
Going Short: Betting that an asset’s price will fall.

Krüger warns that these strategies aren’t equally effective across all market conditions.

3. Market Irrationality and Solvency

As a crypto investor, I’ve learned that the old trading saying about market irrationality often holds true: my financial stability may not last as long as the market’s inconsistencies. It means that even if I spot a pricing discrepancy in the market, it might not correct itself before I exhaust my funds to sustain my investment position. This lesson underscores the importance of careful planning and risk management when dealing with cryptocurrencies.

4. The Persistence of Bull Markets

Krüger delves deeper into the idea of irrationality, emphasizing its significance in relation to bull markets. He highlights how optimistic market patterns may last beyond what the skeptical investors (bears) expect, frequently leading to continuous losses for those who gamble on going against the tide.

Bull Market: A period of rising prices and high optimism.
Bear Market: A time of falling prices and prevalent pessimism.

5. The Peril of Being a “Smart Bear”

Krüger cautions against frequently adopting the role of the “cautious bear” – a trader who wagers against price increases based on meticulous analysis. Instead, he recommends an approach that acknowledges uptrends can persist longer than pessimistic forecasts.

6. When Shorting Can Work

Even though Krüger advises against bearish strategies, he presents two instances where selling short could prove beneficial:

Very short-term trades lasting less than a week.
Carefully managed long-term strategies using options and strict position sizing.

Position Sizing: Refers to the proportion of your entire investment or trading fund that you put at stake in one particular trade. Appropriate position sizing plays a vital role in handling risks effectively and allowing you to sustain through temporary setbacks.

7. Understanding Market Dynamics

Krüger points out that uptrends, which indicate a market is growing, often last for a longer period. On the other hand, downtrends, or falls in the market, are usually quick and short-lived. He emphasizes that this pattern benefits traders who purchase assets when there’s a temporary decrease during an overall increasing market.

8. The Probability of Success in Long-Term Trading

One important aspect of Krüger’s guidance revolves around the analysis of long-term market movements. He suggests that it is generally more profitable for traders to purchase assets during a global market trough rather than to sell short at a global peak. This is largely due to the fact that most assets usually appreciate over longer timeframes.

Global Bottom: The lowest price point of an asset over a long period.
Global Top: The highest price point of an asset over a long period.

9. The Importance of Bias in Trading

Krüger offers a personal perspective on trading. He posits that maintaining an overall positive stance (a bullish attitude) could potentially yield greater earnings, even though it might involve larger short-term setbacks occasionally.

10. Krüger’s Advice for New Traders

Finally, Krüger offers a step-by-step strategy for new traders:

a) Identify assets with strong upward trends

b) Focus on buying during price dips

c) Hold positions for extended periods

d) Gradually sell when prices seem excessive

e) Prepare to reinvest during future dips

f) Avoid using borrowed money (leverage) across your portfolio

Purchasing Assets at a Discount: This approach is about buying assets, such as stocks or cryptocurrencies, when their prices have momentarily dropped in the midst of an overall price increase. The idea behind this strategy is that the decrease in price is temporary and the asset will recover its value.

Utilize external funds to enhance the possible profit from an investment. Although it has the potential to boost profits, it also heightens risk and may result in greater losses.

Based on my years of investment experience, I strongly advocate a strategy that focuses on long-term trend following, careful risk management, and seizing opportunities within market cycles. This approach has served me well in navigating financial markets and has been instrumental in my success as an investor. The key is to stay patient, maintain discipline, and always keep a keen eye on the big picture.

In summary, Krüger’s recommendations lean towards adopting a long-term, positive perspective on trading. Although he acknowledges the possibility of immediate profits through bearish tactics, he underscores that many traders, particularly beginners, stand a better chance at success with a bullish stance. However, it’s important to keep in mind that every trading activity carries an inherent risk. Acquiring comprehensive knowledge and prudently assessing your financial status are indispensable before making any trading decisions.

In financial markets, it’s often lucrative to trade against prevailing opinions. But remember, going long or short isn’t simply a matter of reversing positions; each has its unique implications.

— Alex Krüger (@krugermacro) August 7, 2024

2024-08-07 10:17