The trend giveth, but the chop taketh away.
That's an aphorsim I came up with after watching profits I had earned in previously strong markets, frustratingly frittered away once markets began and continued to pull back or move sideways afterwards.
I've seen this scenario play out with most traders and investors, over and over again. The reason it's so common, is because markets almost ALWAYS go through a period of retreat or chop AFTER a strong trend.
Since March 2009 for example, though the bigger trend has been bullishly strong, markets have pulled back every 17-20 days like clockwork. On the Dow, each"counter-trend" retreat has represented declines somewhere between 200-500 points, or a 2-5% giveback (with the Dow at 10K).
(You can learn more about that 20 day cycle here: Market Timing )
The important thing traders should understand, is that same cycle also advances half the time.
If for that reason, traders will buy (I buy double beta ETF's like the DDM, QLD, and SSO) at the 20 day cyclical low (which often occurs near the 30 or 50 day moving average, and then mechanically take profits (or some profits) off the table at the 20 day cyclical high, which occurs some 10-12 day later, they won't have to live through the drawdowns and frustration that come with 10 days of decline that will inevitably follow.
This of course is a very simple, straight forward strategy anyone can follow, remembering that rarely, if ever, do we short the 20 day cycle in a bull market. But once our longer term trend (also another cycle we follow) begins to decline, we'll reverse that strategy, and start making money in a bear market too.
