Adrian Reid explains that markets (stocks, crypto, commodities) have three broad states — up, sideways, down — and each can either continue, have a temporary shock, or change, creating a 3×3 matrix of possible market behaviors. He argues traders should use systematic rules tailored to different regimes (e.g., trend-following when the broad market is rising; standing aside when rules don’t apply), not attempt to use one rule set all the time. He cites the S&P falling ~20% as a bear market example and mentions shorting Bitcoin during its downtrend as an application of regime-aware rules.
Chapters
There's good years and there's bad years. There's easy. Easy is to make money in this. Hardy is right. But what you, what you do is you start with broad market behavior. I mean, the market can only do. And when I say the market, I'm talking about the stock market or crypto or commodities, like whichever market you want to trade, right? The market can only do certain things. It can go up, sideways or down in, in the broader sense. And within those three things, that trend can either continue, there can be a temporary shock against that trend, or that trend can change. So the market can go up, sideways, up, sideways or down, and it can continue, have a temporary shock, or it can change. And so that gives us like a three by three matrix of the behavior that could happen. Now if the market's going up, it can turn around, start going down. Do we have to care that it's Covid or that it's the financial crisis, or that some crazy person got elected as president, or the interest rates went up, or that some crazy person invaded another country or any of those things? So we don't have to predict those things. What we have to know is what the market could do. If it's going up, it could keep going up, it could dip, or it could change to either a sideways or a downtrend. Now, my rules don't have to make money in all of those different conditions. They just have to make money where they know how to make money and they have to stand aside where they don't know how to make money. If I have a set of rules, let's say I'm trend following. So I'm following trends of stocks that are going up.
That set of rules is going to work way better when the broader market is going up, when the S and P is going up. So I might have another rule that says if the S and P is going up and the stock is going up, then buy the stock and sell the stock if the stock starts going down or the S and P starts going down. Because it's the, it's the broad conditions that set you up for success as well as the individual stock you're buying. So you don't want to try and make money with one set of rules all the time because that one set of rules won't work all the time. Right now we're in a bear market. As of time of recording, I'm pretty sure the S and P just dipped below that 20% from the the high, which is the kind of technical definition of a bear market. I've just been going down for a while. So I don't want to buy and hold, hoping stocks go up. Just like I don't want to buy and hold bitcoin, hoping bitcoin is going to go up. Bitcoin's gone, gone from 69,000 to 20, almost 20. That's clearly not going up. It's in a downtrend, so I'm not holding it, trying to hope for it to go up. I sold it short so I can profit from it going down, and my rules will tell me to do that. So if you have those systematic rules that make money in different market conditions, then it doesn't matter what the market does.
