Trend-Followers Live Above the Fray

During bull phases the market wants to keep moving up, and the default action is for investors to "buy the dips." The predominant bullishness is evidenced by generally lower volume when the market declines and higher volume when it advances, because more investors view a market retreat as an opportunity to jump in at a better price.

This, in turn, causes the higher highs and higher lows characteristic of bull markets. Remember when it seemed you couldn't throw enough money at tech stocks?

However, when the stock market enters a bear cycle, investors' emotions switch from euphoria to desperation. The market mentality calls for "selling the rallies," thereby driving the bear down further. Fear rules the roost. And inwardly -- and sometimes in loud voices for everyone to hear -- bearish investors chuckle with a clear and present "I told you so" tone.

Let's say you invested $10,000 in the Nasdaq Composite Index at the very bottom in October 1990 and held on until the very top of what was one of the longest-lasting bull markets in history. In March 2000 you would have accumulated $277,000 with a buy-and-hold strategy. That's a pretty tidy return.

However, human emotions being what they are, it is highly unlikely that you would have 1) invested at the very bottom, 2) held on through the crashes and corrections along the way and 3) sold at the very top.