As market changes conditions, you must anticipate what's next and try to change with it or anticipate it's next change and lead it. For example, if you start producing some significant wins in your trades even as market corrects, this is a market in which is likely not all that correlated. You may want to raise some cash and your next opportunity should have a bit smaller percentage and/or smaller dollar amount per trade as you continue to pocket more cash each time. This way if there is a flush out where everything sells off and fear turns into panic, you will be positioned to capitalize without missing out on opportunity.
But typically you will want to actually buy MORE stock as the market gets lower so you can average in. You don't want to on every small dip, but if you get that flushout you will add, but also overall you may add as it declines.
This is tricky, but individual positions should decline as the market declines in case there is a flushout so you will be positioned to capitalize, while the overall market index ETF allocation strategy should grow. Overall your risk exposure may not change a ton, but should based upon your outlook. I believe the odds might increase slightly of a decline in some cases, and in those cases you may want to role some of your excess cash into some hedges or hold more cash rather than buying the market index ETFs so aggressively. In other cases, I think the market is sending you a clear signal that it has panic written all over it and you can suspect a bottom. In this case, the odds of a substantial rise over the coming days, weeks, or months is significantly greater than when market has an orderly pullback. However, there is a middle ground where market has made an initial move, and the market gets chased out of stocks even as they go lower, This can lead to margin calls which force more people out. It is difficult to know without paying very close attention to the current market appetite and reading the signs so to speak.
Sometimes that major sell is just a sign that market wants out and more people want to sell than buy even at lower prices. The failure for certain places, especially in certain industries to buy the dip and the market chasing it lower is a cautionary sign. The market chasing stocks higher is a very bullish sign for the industry, sector, or market. So how aggressively is the dip bought, what point in terms of "sentiment" are we in, where in the "risk cycle" are we in, and what point in the long term sector rotation theme are we in? There are other technical tools, but not all are created equal. These tools can help you. You can use volume profiles to see where it's likely that new transactions will take place based upon where they did before. If there is no price memory prices can continue right through the area. If there has been resistance before and lots of volume it may act as support as buyers defend their past prices. If buyers are under water and further declines continue you can anticipate panic especially with a volume profile below and a "mania" type of price action.
Knowing statistically what percentage chance you have given your rebalancing period of seeing the asset class outperform all others and weighting accordingly... Or knowing how that might change during particular seasonal data can provide you with a baseline strategy that may statistically allow you to use the "game theoretic exploitative strategy". However getting good at reading the overall "markets" is a skill that you can use and apply information to and probably get on average a greater edge. Perhaps not one that can easily be scientifically quantified, but that doesn't mean that you cannot apply a bit of "art" to the science of portfolio management.You can root it in the "science" and then use an average estimated edge to strategically deviate, from it, or USE science to help you establish the "art" to it , by accumulating knowledge like that and rooting it into your intuition. Either approach intends to accomplish the similar task of superior handicapping of the market's relative areas of out-performance and positioning accordingly.
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