To print article, click Print on your browser's File menu. Go back Posted 9/21/2000 Niederhoffer & Kenner What's next for Wall Street	sponsored by: Extra! Trading rules that hold true, sink or swim The British stock market has skunked investors this fall, declining about 19%. Here are 10 trading rules we like to follow when fishing in good times or bad, and two reasons we think the bad times may be over. By Victor Niederhoffer and Laurel Kenner Great tides of history and markets can be contemplated in London with greater immediacy than in the United States. Visiting here for a speech this week, Laurel found her guidebooks were filled with notes on monuments that no longer exist, rivers that once were above ground and places that never quite recovered from the Great Fire of 1666 or Hitler's Blitz. Money Plus. Easy online tools and free Bill Pay, too. So world-weary are Londoners that they barely bother to put up street signs. Perhaps they sense that events will overtake them. Indeed, while the boulevards and alleys of the great city are lined with gaily-lit restaurants and shops, the British stock market is moribund. American travelers are pleased with the effect of the pound's decline on their hotel bills, but Laurel is sorry to report that the FTSE 100 Index -- the equivalent of our Standard & Poor's 500 Index ($INX) -- is down 19% this year in dollar terms, as compared with a drop of 7.6% in the pound sterling. (She reports no apparent effect, however, on the number of guests enjoying the fine linens at the Dorchester hotel, or the fine lunchroom on the fifth floor of the Harvey Nichols department store.) The London market is not alone in sloshing through the millennial mud. Stock markets are at low tide all over the world this year. Only 13 -- about one-fifth -- of the 62 major world equity indexes are up year to date, in dollar terms, and four of those are in China. Niederhoffer & Kenner Victor Niederhoffer has traded stocks, currencies and futures worldwide for the past 40 years; he is the author of "The Education of a Speculator." Laurel Kenner is a trader and former Bloomberg markets editor. In a special series of weekend columns for MoneyCentral, they'll assess the past week's Wall Street performance and next week's prospects. Let us know what you think in the Start Investing Community. In the United States, meanwhile, the S&P 400 Midcap Index ($IDX), after years of being the market's underdog, is one of the stars, up 19% year to date. In contrast, the Nasdaq 100 Index ($NDX.X) has clawed out a spot on the "up" list only by virtue of a 0.5% gain. Whenever we find ourselves grim over a broad worldwide decline; whenever it is a drizzly September or October in the market; whenever we find ourselves wanting to knock the hat off of the next broker who greets us with a "you're filled at your price, sir"; then we consider it high time to go fishing. Rules for the rocky road As traders, we're always on the lookout for rules that hold true in the market's high tides as well as its low tides, and we are especially partial to lessons from patient partisans of the pastime practiced on placid streams and lakes. We were therefore delighted and humbled when our perceptive reader John Lamberg sent us the following rules, and their market interpretations: Be on the lake when the fish are feeding. Know what sectors the market likes. Don't go fishing when the lake is packed with tourists. You probably won't be able to get near your favorite fishing hole, and even if you do, all those churning propellers will scare the fish away. If everyone is playing the same stock idea, the easy money has been made. Come prepared with well-maintained fishing equipment, an adequate supply of bait, lures and sharp hooks, and an extra supply of patience. Give your best ideas time to work, but don't use margin to see them out. Don't make noise; you will scare the fish away. Fidelity never speaks; why should you? Don't fish where there are no fish. Know the structure of the lake and the habits of the fish you are trying to catch. Electronic fish finders can help you locate fish, but it won't make them bite. If no one else is buying, why should you? Catching falling daggers can kill a dip-buyer. Despite your best preparations, sometimes the fish just won't bite. Don't be discouraged; go back to shore and enjoy the day, then come back another time. Even the best traders are only 60% right. Just make the winners big ones. Sometimes you find yourself in the middle of a school of feeding fish. Keep your hook baited and in the water. Correct equipment problems quickly, and get the bait back in the water. When your stocks are running up, stay with the trend. When a big one takes your bait or hits the lure, set the hook firmly, keep tension on the line at all times and play the fish until it tires. Keep the landing net out of sight. Don't sell winners too soon. When a really big one breaks your line, take it in stride. He may still be in the area, so always have a backup fishing outfit aboard. If a market decline washes out a group, get ready when the group takes off again. Know when to come back to shore, particularly when whitecaps start to appear or there are storm clouds in the distance. If the market gets crazy, go to cash while you figure things out. We applaud Mr. Lamberg, and nod as well to fellow reader Prof. Mark M. McNabb of Virginia Tech for his interpretative augmentations of these rules. Now how to implement them?
Recent Articles • 18 stocks for adventurous investors, 9/15/00 • Value lovers tilt at the windmills of growth, 9/8/00 • Meet the Willy Mays of finance, 7/21/00 more...	Our fish are biting When we found the Nasdaq ($COMPX) down more than 10% during the first 11 trading days of September, we valiantly took out our rods and reels and went fishing for stocks (the inverse of rule No. 2). We bought to the full extent of our credit line, and so far, with the extent of Tuesday's 5% catch, our Nasdaq warehouses are filled with flashes of silver. Why did we believe that the recent decline was potentially the end of a downward move rather than the start? In the context of the 2000 market, in other words, what made us think that it was more like April 14 rather than March 30? One factor, in our opinion, was the fact that the yield on the 30-year bond failed to break above 6% on Monday by the width of a catfish whisker. The environment for stocks becomes a lot more bearish when yields go above that mark and thus become more competitive with equities. Also important was our interpretation of the recent storm that has convulsed the European and Asian markets. Their sharp declines suggest that the markets were close to realizing their destiny in separating the strong from the weak. We believe the overseas storms -- whether caused by the euro or higher energy prices -- are close to climaxing and will soon be seen in investors' wake. We plow into autumn with the wind at our back -- our hooks baited and ready. MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.