If you are a longer term buy-and-hold investor you don't pay much attention to the overall market trend. You buy good stocks, maybe add some shares on weakness, and then hold on as they move higher over the course of years.
If you are a more active trader, the cycles of the market are of paramount importance. You want to optimize gains in uptrends and take defensive action in downtrends, but many people overlook what should be emphasized most.
Traders and hedge funds that are the most successful tend to produce their best relative performance during downtrends rather than uptrends. This is the key to beating benchmark indices and producing superior results. It is avoiding big losses during the pullbacks and downtrends that create the foundation for substantial outperformance.
Market players have a natural tendency to focus on optimizing gains during uptrends. Everyone wants to be in the hot stocks when they are jumping higher. While that is obviously of great importance and can create a significant advantage, the key is holding on to those gains when the market cycle shifts. Catching a big move is nice but if you give back the gains when the market corrects you will never produce superior returns.
This is the reason that I so often preach that you should focus on keeping accounts as close to highs as possible. If that is your focus then you are going to be quick to dump stocks before they can drop significantly. Your chances of outperforming over the longer term are substantially higher if you don't suffer major losses during downtrends.
There are two things that work to benefit you when you avoid downtrends. First is that making up losses is so hugely unproductive. If you lose 20% you need a gain of 25% to return to even. That isn't that bad but the bigger the loss the more work you must do. If you lose 50% of your money you need a 100% gain to just return even. Consider how much work that is to simply get back to where you once where.
The second benefit of avoiding big losses is that the power of compounding works for you. Anyone that has studied personal finances understands how powerful compounding is. Typically we think about it in terms of individual stocks but if you are an active trader you should think about it in terms of your overall account. When your account is near highs, you have more cash to invest and that means you will be able to compound your capital at a faster pace.
Most people think that compounding only applies to long term buy-and-hold but that is not the case. The issue is keeping accounts near highs, not what you happen to be holding.
If you want to produce exceptional returns over the long term it is helpful to be a good stock picker but it is even more helpful to avoid losses in a poor market. Relative outperformance is most important in downtrends and corrections. Focus on not losing money in a bad market and you will be well ahead of the pack.