Trading is difficult because no method, system, or style works in all markets, all the time.
Profitability is primarily a result of losing small when you are wrong, and maximizing profits when you are right. Knowing and trading your edge is the best path to profits. Here is who makes (or loses) money in different types of markets:
- Trend followers make money when a strong market trend persists for months. They lose money when markets give false signals and reverse and stop them out.
- Swing traders lose money when support and resistance do not hold.
- Day traders lose money in markets that fail to move in one direction intraday, and instead move fast and erratically.
- Option premium sellers get hurt in sharply trending markets when they sell spreads, or naked options.
- Option buyers get hurt in markets that move against their options, don’t trend enough, or that don’t move enough before their expiration.
- Momentum traders lose money in markets that are range-bound or tend to reverse after break outs.
- Investors lose money in bear markets.
- Buy and holders lose money in bear markets.
- Perma-Bulls lose money in bear markets.
- Perma-Bears lose money in bull markets.
- Fundamentalists lose money in any market that doesn’t conform to their analysis of what should happen.
- Traders that trade too big of position size blow up eventually in any market environment.