How To Adjust Your Trading Style as Market Conditions Change

There are many ways to conquer the market monster and earn exceptional returns. While many market participants would happily claim otherwise, there is no single stock market approach or style that is inherently superior over the long term. What works best is primarily a function of finding an approach that suits your personality and emotions. What works well for one may be a disaster for another.

Great traders are constantly tinkering with their style and trying to improve their results, but the problem is that market conditions are constantly changing and even the best approach to the market sometimes performs very poorly.

What do you do when market conditions make your investing or trading style ineffective?

One solution is to step aside and wait for market conditions to change again. The great certainty of the market is that there will be cycles and if you are patient your approach will likely work very well again.

A second solution is to tinker with your style. The problem is that when you start tinkering with your trading style, there tends to be less clarity, leading to a lack of discipline. Lack of discipline always leads to greater losses.

When you change your approach to the market, you need to be very clear about what changes you’re going to make and how you’re going to handle things differently.

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Changing timeframes

The most common change in trading style to cope with market conditions is changing the time frame. The worse the market conditions then, the shorter the time window is usually. However, there are people on the other end of the spectrum who see bear markets as an opportunity to take very long positions in favorite stocks.

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In bull markets with strong uptrends, the cheapest trading approach tends to be trend trading, where a stock is held for weeks and months to gain sustained momentum. This can lead to exceptional returns, especially when you pick stocks that focus on high-beta stocks that are outperforming the broader market.

This is my preferred trading approach, but it doesn’t work well in bull markets. There will still be some opportunities to spot technical breakouts and trends, but the timeframes are much shorter and the downside risk much higher.

Some traders will transition to pure day trading or focus more on short selling, but this requires a fundamental shift in thinking and behavior. What happens all too often is a style drift where traders ultimately react to market conditions but lack clear trading guidelines to keep them disciplined.

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

The current market is a particularly good example of trend following and position trading not working well. The market is mostly macro and news driven, technical conditions are sloppy at best and there is big reaction to economic news. Finding and holding “good” stocks is not rewarded in this environment. It will change, but it takes patience.

Rather than reinventing your market approach every time market conditions change, it’s best to play around with time frames if you want to stay busy, but it’s best to just understand and accept that it’s a good time, something Finding Else Until You Can Do Else Market conditions change.

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