The stock market goes through cycles of up trends, down trends, and range bound price action. This is caused by equities as an asset class going through phases of accumulation and distribution. Bull markets are where the easy dollars are made. You can buy the best growth stocks as they break out of price bases to new all time highs and trend higher and higher after each great earnings report. You can buy a stock and just let it go higher for weeks and months, easy peasy. This is where the old ‘let your profits run” axiom works: in trends. The bulk of my stock market trading profits were made with the right stocks in a bull market. It only takes a couple of leading stocks to make you great market beating returns. Early in the strongest bull markets you don’t have to do much, you are just holding winners and being happy. Bull markets have ascending vertical support levels: primarily moving averages. You don’t get stopped out though because end of day support holds as your stocks make higher highs and higher lows.
In a range bound market you have to do some work, you have to start buying dips and selling strength. There are horizontal support and resistance levels. You can buy fear and sell greed and make money. You have to start working at it though earning the money now requires entry and exit decisions.
In a down trend, correction, or bear market the party is over. You can actually lose money rather easily. Buying dips loses money as lows get lower. Doing nothing loses money as prices fall. Waiting too long to get out loses money because you miss the rally. Selling short as prices fall and riding the trend down is usually not as easy as buying and riding an up trend because downtrends tend to be filled with rallies and volatility.
Bull markets contain the easy dollars this is where you have to maximize your ability to ride a trend. Range bound markets can be profitable if you can buy the dip and sell the rip. This is where you have to earn your dimes through active trading. For most people the key is to not lose much money in a bear market. Selling early at the first sign of trouble can save a lot of hard earned bull market profits. I have avoided the biggest stock market downtrends since 2008 because there is so many warning signs before a plunge. This has saved me from major drawdowns and the mental and financial pain of losses. Down trends are where you are picking up pennies in front of a steamroller. Day traders and some swing traders can make some money in down trends but remember that for most that is not where the real money is made.
