Profiting in a falling stock market (short-term trading vs. long-term investing)

One benefit of traditional “buy and hold” investing is the ability to fully participate in all upside gains of bull markets. However, one major disadvantage of long-term investing, compared to shorter-term swing trading like we do, is the inability to control risk and volatility in downtrending or bearish markets (click here for our comparison of the 4 main investing timeframes). Put another way, the greater the potential for an investing methodology to earn large gains in bullish market environments, the greater the risk of loss when the stock market eventually and inevitably enters into a normal downside correction…or much worse, such as the whopping stock market decline of 2008.

Over the past two months, in which the main stock market indexes have been trending steadily lower, the benefits of consistently following a disciplined, rule-based swing trading strategy and market timing system have again been brought to light. For the combined months of April and May (the first two months of the second quarter of the year), the large-cap Dow Jones Industrial Average lost 6.2%, the benchmark S&P 500 Index shed 7.0%, and the tech-heavy Nasdaq Composite tumbled 8.5%. However, because our market timing system is based on following the intermediate-term trend of the broad market, our rule-based trading strategy is designed to profit equally in both uptrending and downtrending markets. As such, the ETF and stock picks in the model trading accounts of our Wagner Daily swing trading newsletter scored a solid combined gain of 4.8% during that same two-month period (an ouperformance of the main stock market indexes by more than 11% for the months of April and May).

The table below shows the detailed entry and exit points of every ETF and stock trade that accounted for our 4.8% gain over the past two months. Note that each model portfolio (one for ETFs and one for stocks) of our trading newsletter is based on a cash value of $50,000 ($100,000 combined cash value). Also, because The Wagner Daily newsletter is designed to be a complete end-of-day stock picking service, the entry prices and exit prices for all swing trades are provided to our subscribers outside of market hours, making it ideal for part-time traders who are unable to follow the market during the daytime hours (new trade and position details are updated nightly):

Below is a summary of more detailed statistics of our ETF and stock trade picks over the past two months:

Although there is no right or wrong way to profit in the stock market, we feel the best way to yield consistent stock trading profits is through following a disciplined, rule-based trading strategy and market timing system that yields consistent gains with the least amount of proportionate risk. For us, swing trading in the short to intermediate-term timeframe provides the best fit between potential reward vs. risk. In strongly uptrending markets, for example, the model trading account of The Wagner Daily swing trading newsletter will sometimes underperform the gains of the main stock market indexes because we strictly control risk at all times. To be frank, one doesn’t exactly need to be Warren Buffett to profit from stock market trading in a steady bull market. But what separates professional traders from the retail investing “herd” is that successful professional traders follow a disciplined trading strategy that enables them to keep their profits when more challenging market conditions eventually arise. Most amateur investors, on the other hand, ultimately spin their wheels by giving back eveything they earned in “the good times.” To prove the difference having a rule-based trading strategy and market timing system can make, check out the graphic below, which is a 10-year historical comparsion of the performance of The Wagner Daily newsletter versus the benchmark S&P 500 Index:

Although there have been short-term periods of underperformance , our model ETF and stock trading portfolios have outperformed the cumulative gain of the overall stock market by a wide margin in the 10 years since our company’s inception. Click here to view our detailed cumulative and individual trade performance of every swing trade in The Wagner Daily since 2002. Obviously, past results are never an assurance of future performance.

If you’re frustrated with the recent performance of your investing or trading portfolio, and are serious about learning or following a proven trading strategy that works, we are happy to help. Simply sign up for your 30-day risk-free trial subscription to The Wagner Daily, the swing trading newsletter with our best daily ETF and stock picks. Your membership includes access to our market timing system, Live Q&A Webinars, and optional Live Trading Room. Annual subscriptions equate to less than $2 per day, and we promise you will be satisfied.
DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter “The Company”) is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock’s actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter “The Newsletter”). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never assures future results.