ETF Trend Trading Review – Is It Effective In Down Markets?

Written by admin on August 2nd, 2011

Trading in a bull market is easier than trading in a bear market. Many traders find they can make money trading in bullish markets, but when there’s a major correction underway or when the market is bearish, they literally freeze and are unable to trade successfully or find profits in their trading.

First,when a market has collapsed, it is vital to accept the proven fact that the market trend has changed from bullish to bearish. It is man’s nature to find scapegoats or to discover a ?reason? Or to rationalise away the fact that the market trend has changed. But unless the trader accepts the proven fact that he is only responsible to trade his way out of a bearish market, he will find his position untenable and discover losses that add up daily as the market bearish sentiments continue. It doesn’t pay to decline the responsibility of your own trading action and dump the blame on your broker or your friend who has given you the’tips’ that led straight to your losses.

If you are faced with losses from a unexpected collapse in prices, accept that it’s your responsibility to now institute action to get out of this situation with profits.


Secondly, while in bullish markets it is straightforward to trade by just buying stocks that are in primary outbreaks and just holding them and coming back again after some days to reap profits, you cannot do the same during bearish markets.

In bullish markets, you trade with the trend, and so long as the trend is up, you stand to make easy profits. On the contrary, in bearish markets, the market goes into consolidation, and trends are ?shorter? In duration or the market will go into a sideways direction, with prices oscillating between ranges. During bearish markets, we are way more biased towards range trading instead of trend trading. So if you do not know the easy way to change from using trend trading to range trading, you may be caught with short term trend changes and suffer whipsaws and lose money trend trading during bearish markets.

Dealing with traders who have gone thru a chain of major market corrections since 1987 has led me to conclude that there is no room for lackadaisical trading during bearish markets. The margin of error for a trading signal is significantly lower when trading in a bearish market. I have seen traders who can quickly change or evolve from longer trend trading to trading shorter swings in the market or range trading to be able to make cash from their trades. In bearish markets, they are contented with smaller profits, but trading more frequently and in higher volumes. To aid in their margin of profits, they can negotiate the lowest brokerage terms possible with their brokers or to use discounted online trading platforms.

In bearish markets, the trader who range trade will be the person who is best positioned to use the shorter and faster rebounds that happen as stocks get oversold and retrace upwards. Accepting personal responsibility and changing to range trading will improve his chances to earn money during bearish markets.

For more information about trading, check out ETF Trend Trading and get more informative trading literatures for free!

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