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Trader Q&A: How Can I Tell if the Market is Heading South?

Watch our panel of trading specialists discuss what, if any, indicators may foretell a sudden downturn in the market.

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[Lou] Let's go to our next question. Burke from Florida: "How can the average investor know if the market is heading south?"

[Kevin] When it actually happens, is the way I would look at it, unfortunately. We are all looking for that first suggestion, "Okay, this is the tipping point. This is when things are changing." I find that those of us investors who try to pick that point and actually put our money where our thoughts are, are the ones that end up getting burned, unfortunately. The smart way to consider it is quite simply wait for it to happen and when it does, be prepared to act then. But until that point if you're taking a bearish stance on a bull market you're basically just trying to go against the grain and I don't think that that's a way for success.

[Lou] You see this all the time, we have this thing in our head called a brain and we want to use it. We always want to predict what's going to happen next. We spend a great deal of time either reading things or coming up with reasons on what's going to happen next.

In reality nobody knows, so you want to have a plan but trade in the direction of the trend. Things often trade higher a lot longer than you think they will; things will then trade lower a lot longer than you think they will. Trade in the direction of the trend if you're looking at shorter term investing.

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