The Entire 2008 Crash Could Have Been Avoided With One Simple Trading Rule

Tyler Durden's picture

Submitted by Daniel Drew via Dark-Bid.com,

In my recent article How To Avoid Being A Retail Bag Holder, I discussed a trading strategy where one only buys the market when it's down between -3.00% and -0.50% for the week. I also mentioned that it was important to avoid buying when the market was down more than 3% for the week. One observant reader asked, "Where's the chart for the down 3%+ strategy?" To satisfy any lingering curiosity, I decided to create that chart.

What I found was stunning: An investor could have avoided the entire 2008 collapse by refusing to be a hero trader.

Hero Trading

There is a stark difference between BTFD and trying to save the world. While BTFD can be a valid strategy within shorter time frames, it's not appropriate when the market closes down 3% or more for the week. Buying the market when it's down that much is like joining the military: you get shipped off to fight someone else's war.

So the next time you see the market down big and you feel the urge to hero trade, remember, you're only a hero after you're dead.

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Say What Again's picture

Your proposition that this would have reduced the crash is BS.

The crash was caused by counter-party risk, AIG's exposure to CDS, margin calls from hell once the CDO, Bond, etc.  assets were valued, and moar.

HowdyDoody's picture

Rule 0: Shoot all the banksters.

 

TimeIsTheFire's picture

I think he means a day/week trader could have avoided making losses by following this strategy, not that the market itself would have been prevented from falling...

Say What Again's picture

Let's review the headline, shall we

"The Entire 2008 Crash Could Have Been Avoided With One Simple Trading Rule"
DaveA's picture

He said "avoided", not "prevented". If a car crashes on the racetrack, I duck, and a piece of sheet metal passes over me and slices your head off, I avoided disaster, didn't I?

Jane Sheppard's picture

I buy when me willie hangs left instead of right.

Raffie's picture

So we had a trader take one for the team that killed the team.

Hmmmmmmmmmmmmmmmm

Wang Dang SP's picture

That reminds me, I need to dust off my stack.

Skiprrrdog's picture

BTFD

Bite The Fucking Diaper

Hyena Rodehard Clinton- COTUS

falak pema's picture

buy at the sound of the canon... learn your latin !

lasvegaspersona's picture

I'm going back in time...I'll be rich with this suggestion!!!!!

booboo's picture

I know a guy named Biff, he has a sports almanac from the year 2017, says he can make a fortune.

Antifaschistische's picture

the entire thing could have been avoided if the FED didn't counterfeit money to loan to retail shoppers, corporations and investors.

thefinn's picture

Exactly, it's pretty worrisome when you come to ZH and find an idea like this to paper over companies that SHOULD BE gone.

NDXTrader's picture

Or you could use stops

11b40's picture

You coulld effectively use stops back then.  Maybe now, too, if you live in front of screens.  For the average investor now, the machines say "all your stops are belong to us."

Carpe Tutti Bastardi's picture

"all your stops are belong to us."

It was ever thus! especially if you had sufficient quantity to interest them.

they would take the quotes down to your 'stop' grab your stock and run it back up again.

Back in the day Richard? Ney wrote 'The Wall Street Jungle' and i seem to recall he pointed out

that no Specialist house ever went bust. They made/controlled the market(s).

thefinn's picture

This is more bullshit shenanigans to save companies that SHOULD go out of business. What the fuck do you mean halt if weekly unde -3%?

 

What bullshit is this ?

 

I want some fucking free market capitalism.

 

I don't care if Citibank goes out of business in a single fucking DAY. Let alone a WEEK. That's just poor management that's done it to them. I don't care if Deutsche bank does the same.

 

balz's picture

Curve-fitting.

besnook's picture

the best trade since 2008 was to short the banks into oblivion by 3/2009 and buy the spx and many select stocks since then.

this last trade is a bit more difficult. who is going to win? the fed and the western banks? or does the market exert its invisible hand? does the market crash into reality or boom into an inflated dollar? does a broken eu mean a broken euro? or a broken deutchbank enough to push the fiat into one last bout of bank/state run inflation(helicopter money) to save it.

Carpe Tutti Bastardi's picture

I didn't sell anything short.I was too busy getting out of all my Preferreds over the course of several weeks.

I did see it coming down, but as the man said who the hell thought that they would bring it up so forcefully.

Never went back in although I almost pulled the trigger on rebounding bank preferreds....but didn't!

11b40's picture

This should have posted as a response to besnook.

The first part of your 2008 scenario was easy, and that is exactly what I did with banks, retail, and tech index funds.  The second part, buying back in, not so so easy to see.  How many honestly knew the extent the Fed would go to in order to blow the balloon back up?  It sure as hell wasn't common knowledge in 2009/10.

besnook's picture

have to agree. it took me a long time to realize the dead cat bounce was another bubble in the making. the market has been disconnected since then.  everyone who has called the end of the market since then has been wrong even though all of them probably still are convinced they are right.

laomei's picture

Single rule: "NO KIKES ALLOWED", crisis averted.

wethecom's picture

the title had me looking for the Glass stegal act

Anopheles's picture

What a bunch of nonsense.   They're saying that by trying to stop the SYMPTOM (the market) they have the cure to the original PROBLEM?  

The stock market only reflects the much deeper PROBLEM, which was the off books accounting and repackaging of mortgages and other sub-prime securities.  

Do you think that stopping trade of  a stock will save a company that's already structurally bankrupt? 

exartizo's picture

Dear Mr. Drew,

You are a fucking idiot.

Sincerely,

A ZH Reader

elmo jones's picture

Yo hedgefaggots. How about producing some real wealth instead of trading your idols cumstains. You might just avoid the gallows.

hoagy goldmikel's picture
hoagy goldmikel (not verified) Oct 12, 2016 5:05 PM

C'mon Man !!!!

TeaClipper's picture

So, its buy the dips, but dont buy the dip dips. And how the heck am i suppose to tell a short dip from a long dip before it becomes to late?

Think i'll just carry on buying the dips, its been good to me so far, and given how fucked up the world is, I can see silver sitting still for another 3 decades

onwisconsinbadger's picture

How about sending couple of banksters to the morgue in 2008. It is not too late. I can give you some names and where to find them. We can't even put them in jail.

I Write Code's picture

Psst, here's my secret rule: if a stock is going further down, don't buy it now.  You're welcome.

Bunga Bunga's picture

LOL, I could have always won in poker because by now I know the cards.

Mat Cauthon's picture

What does bank illiquidity and stocks have to do with each other in a financial crisis?

MASTER OF UNIVERSE's picture

SELL EVERYTHING & BE A HERO TRADER, but take cash on the way out of TRADING on the way.

 

RUN FOR YOUR LIVES!!!

Griffin's picture

Insiders had all their stash safe and sound early in 08, only the ordinary people took the hit, and the suckers that still believed in the market and bought the dip were wiped out.

The financial markets had been flooded with cheap liquidity and inflated immensely over a few years, then the liquidity dried up very suddenly and there were margin calls left and right. All kinds of shrieks of pending doom echoed from politicians and so called "experts".

You could call this a system shock, kind of like a EMP shock wave, except this one paralysed economies and governments.

It was made clear that those who would follow the mantra that governments should step in and transfer debt from the banking system to the states would fare better than those who would try to oppose taking over those liabilities.

But there was a lot of resistance, and lots of banks fell into bankruptcy and were wound up like any other company that has ever been run into the ground by fools and idiots.

If one looks back at the chain of events leading up to the crash, and the years after, one might almost believe it was intentional.

 

 

 

nsurf9's picture

Very simple - before they occur - prosecute, seek restitution and disgorge all profits from all banking fraud violations of mislabled worthless bundled-CDOs as AAA and putting families on the street.

TradingTroll's picture

What a strategy. Just buying. No selling.