Stocks and futures differ by many things. One of them is the much greater volatility of stocks compared with the underlying commodity or currency of a futures contract. Stocks can double or triple and they do that regularly.
Futures trading is only interesting, because it is possible to amplify their small volatility by using margin. That offers the opportunity to short them and here we have an advantage over stock trading.
Of course, stocks can be shorted also, but that severely limits the maximal gain to 100%. This does not only mean what it directly means. It also means that the average gain of a short trade in a down move, which is much smaller than with a totally crashing price, is smaller than it would be with an up move in a long position. The trading math is playing against you even with smaller moves. Look at this comparison of NYSE and penny stocks.
The same limitation of the price that can’t go below zero hampers the short stock trade also in another way. The price sort of feels the zero barrier and the result is a choppier down move. At least on average bear trends are swingy or choppy and thus harder to trade for the trend trader.
We have two disadvantages for the stock trader compared to the futures trader when it comes to shorting. Of course, there also have to be shares available for shorting in the first place.
For a trading system that switches between long and short, always being in the same position, the futures market is the better choice than the stock market. If the trading system is designed to buy, hold or do nothing and never to go short, the stock market is the clear winner.
But there is a gray zone. Large tech companies that are growing but are also cyclical are often used for swing trading. There are fine down swings, meaning they are smooth and not rippled and thus crippled, and the shorting system also works. Today the trading universe of swingy tech stocks usable for this switch trading strategy is beefed up by ETFs. There are ETFs matching pure commodities, but also many others producing smooth short swings.
One method to trade ETFs is to have someone who has a deep understanding of the ETF market and offers trading signals. This will result in the traditional buy and sell cycle with intermediate cash positions up to 100%. With proper trading signals this is a convenient method. Really.
The other way is to use a software and find the killer oscillator for a given ETF. Have some swingy ETFs and trade them simultaneously switching all positions only between long and short and you have your own fund that is always 100% invested. Here the question is, will it work? Choose the wrong ETFs and your private fund loses money!
Remember, crucial with this system is the right choice of ETFs and that is of course not static.