Changing Markets, and Adapting to them.
When this happens a trader can do one of three things. 1. Be stubborn and refuse to change. The worst way to handle a changing market is to be stubborn. It seems foolish after the fact, but it does happen. During this time the trader will do everything that was working before. But because the environment has changed it does not have the same effect as it did before. This can lead to huge losses if they refuse to change. 2. Taking your profits and running away. Some traders will make money in one market environment but find it hard to make money when the markets change. During this time they decide it is best to leave with profits. They will either give up trading all together or wait years for the market to start going their way again. This is a much better choice than being stubborn but it does have its problems. Every day you let your money sit without gaining interest you are losing money. You could have always put that money to work somewhere else. 3. Adapt to the new environment. The markets are always profitable, just not always with the same techniques. Adapting to the changing markets can not only be profitable but it can teach things that can help you in the future. For example you might find you like taking higher risk to reward ratios during a bears market. Then you find it works better in a bulls market too. So learning from one market can accelerate your profit during other periods. There are two ways you can adjust to a new market. You can use your current strategy but just tighten up (or loosen up) your risk to reward ratio. You may also decide to adjust your long/short ratio to fit the current market. The second way you can adapt to a new market is by changing your strategy altogether. For example you may decide to buy calls in a bulls market, puts in a bears market, and sell options in a volatile market. This way you have a plan for all enviornments.
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