When the futures market is in a bear market, you can still profit from it, but you need a good bottom forecasting method.
Why is Shorting the Market Difficult
This might prove difficult for many people. It is not in human’s nature to expect profits when the price of a futures contract is going down. The futures markets will be highly stressed with negative news of people going bankrupt, rumors of intervention and lots of fear and certainty. You might also feel guilty when your friends are losing money, while you are winning.
Bottom Forecasting from Extreme Highs
The Method: Using the range between the extreme High and extreme Low, divide equally into 4 parts. Subtract each part from the extreme High, so that you have 25% of the range from the extreme High, 50% of the range from the extreme High and 75% of the range from the extreme High. 100% of the range from the extreme High is the same as the extreme Low. A illustration of the Method, using Gold:
The extreme top is 1570.63, extreme low is 680.11, range is 1570.63 – 680.11 = 890.52, divide by 4 equals 222.63.
Bottom forecasts are 1346.15 (25%), 1125.24 (50%) and 910.92 (75%).
Other extreme Lows must also be used, together with the extreme High. For example, 251.47, the other extreme Low.
Note on Bottom Forecasting
If TWO forecast bottoms are very close together, this will denote a very strong bottom. For example, 910.92 in the gold chart above. This same rule also applies for top forecasting. If TWO forecast tops are very close together, this will denote a very strong top. You can see this rule for the price at 1005.24.
When the price drops to the forecast bottom, watch out if there are lots of sideways movement or consolidation, as the traders try to figure out what to do next.
With a bottom forecasting method, read about a corresponding top forecasting method here.