Strategies for Short Term Traders: How Bull Markets Really Behave
One of the signs that a bull market is in place is how it responds to news. Good news see’s exaggerated moves to the upside; bad news is shrugged off. Yesterday was a good example of a bull market behaves with bad news being shrugged off and the market moving higher.
In bull markets, the mean reversion fills on the long side are achieved at normally lower rates. The reason is that the pullbacks – both daily and intra-day- are not as extreme and less set-ups occur with lower fill rates on the set-ups. High cash positions are usually not welcome in bull markets but they are embraced in bear markets. Years like 2000-2002 and 2008 occur and those who are fully invested see large losses. Those with high cash positions often see steadier returns and many are profitable in the bear years because of this approach.
One can say; “I’m going to become more aggressive in a bull market and less aggressive in a bear market”. It makes sense but few statistics prove this out. One never knows when a Japan like near disaster is going to occur as it did in mid-March.
Overall this is a longer-term more conservative way to grow ones money. The goal is to be profitable each year and to protect ones money as best possible.
Look at the Daily Battle Plan Model Portfolio since inception during the bear market of 2008 through today. This is an example of successfully trading on the long and short side in different market environments over multiple years while at the same time keeping high cash positions as protection. Few asset managers use this approach and many have mandates that require them to have money invested at all times. Compare their returns (annual returns and drawdowns) to our Model Portfolio and you’ll quantitatively see our approach discussed above is a better, safer way to grow owns money.
The above is from Larry Connors’ Daily Battle Plan.
To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.
Larry Connors is founder and CEO of TradingMarkets.com.