Adjusting trading style as market conditions change?

/ The article is intended for novice traders. More training materials can be found here: https://www.varchev.com/trading-uni.htm. /

The fact is, what works well for one person can be a disaster for another.

Good traders are constantly updating their style and trying to improve their results, but the problem is that market conditions are always changing and even the best approach to the market will sometimes do very poorly.

One solution is to sit back and wait for market conditions to change again. One sure thing in the market is that there will be cycles and if we are patient, our approach will most likely start working again in an appropriate environment.

The second solution is to adjust our style. The problem is that when we start to adjust our trading style to fit the current market environment, the tendency is that there is less clarity about an investment time frame, which leads to lack of consistency. Lack of discipline always leads to bigger losses.

If we intend to change our market approach then we need to be very clear about the changes we are making and how they would affect trading.

Using different time frames

The most common trading style change to deal with market conditions is changing time frames. Typically the worse the market conditions, the shorter the time frame. However there are people on the other side end of the spectrum that see bear markets as an opportunity to build very long positions in preferred stocks.

In bull markets with strong uptrends, the most favorable trading approach is usually trend trading, where a stock is held for weeks and months in an attempt to capture sustained momentum. This can lead to extraordinary returns if the focus is on high-beta stocks that move faster than the general market.

Some traders move to pure day trading or focus more on Short positioning, but this requires a big change in mindset and behavior. All too often what happens is a style shift where traders end up reacting to market conditions but have no clear trading guidelines to keep them disciplined.

When a trading style isn’t working, the most important thing to do is to stay patient and try not to force trades or make moves just to get something done.

The current market is a particularly good example of how trend followers don’t work well. The market is mostly dependent on macro and news, technical conditions are sloppy at best, and there are big reactions to economic news. Finding and owning “good” stocks is not rewarded in this environment. It will change, but it will take patience.

Instead of reinventing our market approach every time market conditions change, the best approach is to simply recognize that it’s a good time to find something else to do while market conditions change.

/ The article is intended for novice traders. More training materials can be found here: https://www.varchev.com/trading-uni.htm. /