In the world of stock market investing, everyone has the same goal: buy low and sell high. This is the same goal if you are a long-term, buy-and-hold investor, a day-trader, a spread-options trader, a trend-trader or simply a good guesser. No one puts capital to work in the stock market to lose money.
If you had put money into the stock market in 1929, just before the big crash, and held on until today, you would have made a huge profit. In fact, this is the siren song of buy-and-hold... the market ALWAYS... EVENTUALLY... goes up. All you have to do is: 1) Never need the money; 2) Never die; and, 3) Never have a problem of losing half or more of your money from time-to-time.
So... if your time 'granularity' is "forever", then unless you own a security that goes out of business, you will (eventually) be profitable, regardless of current events. The fact that the market drops 20%, 30%, 50% or more and your portfolio drops a similar amount becomes irrelevant in the face of a forever level of time granularity.
Now, let's look at the other extreme... moment-by-moment granularity. If your investment portfolio goes up one minute and then down the next minute, and your definition of a successful investment is measured in moments, you panic when your portfolio goes down and you are euphoric when your portfolio goes up. Day-traders tend to live in this world. Maybe they are not exactly living in the moment, but they sure are living in the granularity of hours; not days and certainly not weeks or months.
You are most likely not in either of the above two camps, although the vast majority of investors tend to be more buy-and-hold than anything else; and they tend to not want to see how they are doing in the short term as they can't handle the emotional swings in the market.
Hopefully, you are in my granularity camp. I like to call my time granularity to be a composite of opportunistic short-term trend trading (days to weeks), coupled with a longer-term granularity of 200 days. In my granularity world, the concept is this: As long as the 200-day moving average trend of the market is on a positive slope, my investment bias is bullish. This means that I want to be invested in strong, up-trending stocks and ETFs as long as the 200-day moving average (dma) is trending higher. I want to move to holding more cash when the 200 dma is flat; and I want to be in inverse ETFs when the slope of the 200 dma is negative, or trending lower.
It is very common that there will be moments in time (hours, days, weeks) when the market is moving in exactly the opposite direction to the 200 dma. This means there will be times when the market is trending in a strongly bearish direction for the day or even the week, but the overall trend of the market (the 200 dma) is still in a bullish, up-trend.
For investors who live in a moment to moment granularity world, these times can be extremely difficult to handle, emotionally. When the longer-term (200 dma) trend of the market is bullish, that means the proper investment strategy is to be in strong stocks that have their own 200 dma that is trending higher. In other words, it is important to have both the holding's 200 dma and the market's 200 dma on the same general trend. But, it is precisely in these times when the market can reverse course suddenly and move significantly in the opposite direction of the overall trend. This is when short-term losses can (and likely will) occur. In my world, this is where stop loss settings come into play. If the pricing of a holding drops more than the stop loss, I want out of the position, regardless of the overall trend of the market or the holding. This is a "hope for the best, but plan for the worst" approach that I use.
And, then in addition to my 200 dma granularity investment strategy, I have the ability to include some 'opportunistic' short-term granularity trades... trades that do not adhere to the longer-term, 200 dma time-frame. This is particularly useful when a market becomes overbought or oversold. This opportunistic strategy reduces the time granularity down from 200 days to a few days or less. This move from the 200 dma level of granularity to going to cash and then into inverse ETFs back in mid-February of this year, got us out of the market, literally within hours of the top.
The move into inverse ETFs was the right decision at that time because the market has dropped from a lifetime high into bear-market territory in less than a month. But, along the way, the market has seen record-setting swings in volatility. There were multiple back-to-back days where the market would go from rip-your-face-off moves to the upside to rip-your-face-off moves to the downside. These historic swings in daily moves meant that I needed to keep client capital mostly in cash, which i did. But, during this same time, there were short-term grand opportunities to ride the roller coaster down with inverse ETFs.
But, when your time granularity is hours or days, then daily losses are hard to deal with and many investors find themselves looking at a one-day or one-week trend as the trend that will never end and when that trend is losing them money, they panic into believing they will never recover. This is the fallacy of having a short-term mindset in a long-term investment strategy.
My advice is this... Know what your time granularity is and stick to it. If it is daily, then judge your results on a daily (and not moment-to-moment or hourly) result. If your time granularity is weekly, then do not judge the success of your strategy on daily results... look only at the week-over-week results. If your time granularity is 200 days, which is what mine is, then be very careful not to spend too much time agonizing over a one-day or one-week or even one-month return.
Successful investment strategies depend on rules and discipline. Not every set of rules works every moment or every day. Judging the validity of a strategy is critically important. We do this continually. But, the validity of the the strategy should be critically reviewed from the perspective of its stated time granularity.
If you are a client of mine and expect my strategy to work perfectly every minute of the day; every day of the week; and every week of the month, then the results you will see from time-to-time will be disappointing. This would be true of any strategy. As an example, a buy-and-hold strategy would expect you to never complain about losing 50% or more of your capital. Why? Because a buy-and-hold strategy does not consider any loss, regardless of size, to be an issue as long as you are in the strategy for "the long haul". As you know, I think buy-and-hold strategies are horrid strategies for most individual investors; they just take on far too much risk.
In a 200 dma time granularity world, I limit downside losses to no more than our stop loss settings. I always assume a trade can, at any time, move dramatically against us and when that happens I want to get out of that trade before any major damage can be realized. But, I am also willing to accept short-term losses, as long as those losses do not exceed our stop loss settings, when we have our investments (holdings) in sync with the market (at the 200 dma level of granularity). Of course, there are exceptions to the rule of the 200 dma, as described above (e.g., overbought, oversold, short-term severe trend reversals, etc.) when a shorter-term, opportunistic, investment strategy can be used, but used sparingly. A good rule of thumb: "When the 200 dma is moving in one direction, but the market is dramatically moving in the opposite direction, focus on holding more in cash."
There is an old, but true adage: "Don't fight the trend because the trend is your friend."
Think about your time granularity... decide which granularity of trend you are and can live with... then make sure your investment strategy is in sync with that granularity of trend.