1. How do you know when you're in a bullish market and a bear market? Example, the SP500 seems to be growing pretty well, but can this still be performing well in a bear market? Or would all stocks etc. Be falling or underperforming in a bear market?
2. I assume all you guys are self taught traders. At the moment I'm not sure I can grasp this good enough to become a good trader. I've seen a copy function on apps like eToro. On the basis that I don't feel confident enough to pick my own stocks etc. Is it a good idea to invest a small lump sum of money and just copy people who seem competent at trading?
1. Bull vs Bear
Bullish markets are by-and-large increasing (higher highs and higher lows). Bearish markets are by-and-large decreasing (lower highs and lower lows). Trendlines on SPX/RUT/QQQ etc will tell you this quickly if you don't have an eye for it.
You have to remember as well that there are temporary
corrections that may look like a market sentiment switch. Everyone has their own rule but this one is semi-reliable: indexes crossing above (bull) or below (bear) the 200 SMA, rising (bear) or falling (bull) volatility. Volatility is probably more accurate. Volatility picks up significantly as prices fall.
Total market sentiment change must not only include the price action sentiment change, but also other fundamentals of the market: reduced consumer spending habits, interest rates (in particular the inversion of the yield curve), etc. For example, I think we are in the largest fake out in history. What I mean by this is we SHOULD be approaching a bear market by fundamentals, but the price action and market volatility tells us it is still a roaring bull market.
2. Self taught
Don't copy people who are competent in trading. Everyone has their own style and personality. This doesnt mean you cant
take good habits from better traders. However, develop your own style. It is critical you learn your own risk tolerances - for example there are traders here that are very good at scalping. It might be worth paying attention to them for the purposes of learning good habits on setting stops. For me, I could never scalp because I am naturally risk-adverse. I like to fix my risk and let trades run for a while. Obviously it wouldn't be useful for me to learn how scalp by following someone.
Instead, spend a few hundred on books. Start with the basics: learn fundamental analysis with
The Intelligent Investor, learn technical analysis with
Technical Analysis of the Financial Markets, read about famous systems like
The Turtle Trader, How to Make Money in Stocks: A Winning System in Good Times and Bad, and The Logical Trader. Take the interesting bits of these (write them down) and set out to work out your own system. You'll fail a lot, but everyone has to pay their tuition to Mr. Market.
From there pick up some motivational literature. Look into
Market Wizards, The New Market Wizards, and
Reminiscences of a Stock Operator. The Audible versions of these are excellent quality. I highly recommend them.
I run counter to the majority of people. I do not suggest paper trading. If you study first how to limit your risk, for example no more than 1-2% max risk per trade, losing 7-10% in a month means you halt trading, liquidate everything, and hit the books for another month or two while you build that capital back, and come up with a decent starting system for trading, you can't burn out before you learn something. It is hard to learn with training wheels wearing pillow armor. You
must risk your own money to learn something. Every trade you should
feel. Each time it goes down and you want to pull out - you have to make the conscious decision to stay in longer or get out because you made a bad call. Paper trading will never teach you this. It is impossible (really) to understand the fundamental aspects of trading and risk management with paper trading. It is virtually impossible to take seriously. Come up with a decent risk management plan, and (as long as you have a decent idea of what to do) place a trade and see what happens.
