For much of the two-year rally that ended in 2021, investors could buy the dip and then wait for the next upswing to make money.

It was a strategy that often delivered double and even triple-digit percentage returns on many stocks.

However, that all changed in 2022 with plenty of former highflyers crashing back to Earth.

Stocks like Meta Platforms (META), Amazon (AMZN), and Netflix (NFLX) have each torn up billions of dollars of shareholder value.

Only in the past month have some of these stocks finally started to find a base.

Those who’ve tried to repeat last year’s strategy in 2022 have been truly buried. “Buying the dip” has been a sure-fire way to tear up money.

Now, investors are utterly confused as they try to figure out how to approach this market…

Bad Habits

But that’s the problem with bull markets. They let you get away with all kinds of bad habits.

Like, putting more capital than you should into a single trade, or ignoring stop losses.

While you might get away with it on the way up, you’ll take the hit when the market inevitably reverses.

For example, those who tried to ride out Netflix have lost upwards of 60–70% on their trade. Even if Netflix can turn it around, it could take years to get back to breakeven.

That’s a long time to tie your capital up when there are better opportunities around.

But it’s not only risk management where bull markets teach lousy habits. It also applies to technical analysis.

By ignoring or overriding simple entry and exit strategies, undisciplined traders are exposed in a bear market.

Unfortunately, it’s only by going through a tough correction (like we’ve seen this year) that investors finally get the other half of the picture.

That’s why after a tough start, now’s the perfect time for traders to reassess and refocus on how they’re going to trade smarter for the rest of 2022.

Find a Process and Stick With It

After suffering some big losses, many traders falsely think that the best way to get their money back is by winning big on a handful of trades.

So they scour the market for the most beaten-down stocks in the hope that they might return to their glory days.

However, these stocks are often yesterday’s heroes and are unlikely to repeat previous gains.

Even if the stock does initially bounce, the rally is much more likely to fade out – or reverse sharply again – given the huge increase in volatility we’re seeing in the market.

Instead, I’ve found that the best way to make money is by trying to make lots of little profits consistently. That’s how I built up my account after blowing it up multiple times early in my career.

I learned that you should only enter a trade off a strong setup – like an RSI reversal for example. And, that you should take your profits when you see them.

Because in this market, profits can turn into losses in a heartbeat.

I also traded a limited number of stocks. By watching just a handful closely (like Apple and Microsoft for example) you can get a far better feel for what makes them tick.

And that’s what tips the odds back in your favor.

Without a repeatable and sustainable process, you simply don’t have a trading system.

That’s why for the rest of 2022 and beyond, it’s more important than ever to refocus on the basics.


Larry Benedict
Editor, Trading With Larry Benedict

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