In a previous article, I offered details on one way to quantify a bubble, at least for defining a market opinion. In this article, we will test the idea and assess the probability of successfully trading bubbles.
If trading can be reduced to a well defined set of rules, then market forecasting can also be defined by testable rules.
These days you do not have to listen to an investor very long before hearing of a boom-bust cycle. The recent internet stock boom followed by a housing boom has left many confused.
Experience is always the best teacher, but it’s also the most expensive. There are a couple of very important trading lessons to learn from the collapse of MF Global that we can learn at the expense of others.
When the market is rallying and bulls stampeding, it’s easy to get caught up in the hype. But every trader must learn when its time to step back or step out altogether if he or she is to survive in the trading game.