Here’s history’s greatest trader on bear market retracements. His “paper profits” refer to what he had made on his short position at that point during the bear market he was trading. He held his ground because he was certain that what he was about to experience was simply a bear market rally/retracement. He turned out to be correct. It was all about his study of “general conditions”:
“That is about all I have learned—to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary.
I have been short one hundred thousand shares and I have seen a big rally coming. I have figured—and figured correctly—that such a rally as I felt was inevitable, and even wholesome, would make a difference of one million dollars in my paper profits. And I nevertheless have stood pat and seen half my paper profit wiped out, without once considering the advisability of covering my shorts to put them out again on the rally. I knew that if I did I might lose my position and with it the certainty of a big killing. It is the big swing that makes the big money for you.”
Here’s me on current macro conditions, current market dynamics, bear market rallies/retracements and what it all says about probabilities from here:
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