http://www.marketwatch.com/story/dont-get-frantic-buy-short-based-etfs-2010-06-01

LA JOLLA, Calif. (MarketWatch) -- During times like these, when the market declines, traditional investors become frantic.

Most of them are lost. After all, your brokerage firms have told you to just continue to buy more and the market will always do well over time. I hope that the past 10 years has taught would-be traditional investors that the traditional doctrine handed down by the brokerage system is flawed.

TRADING STRATEGIES: JUNE
Don't get burned again
Investors were burned in May’s market turmoil. Let our experts guide your June trading in this still-volatile environment.
• Hulbert: Surviving currency crises
• Hulbert on what's working: Gold bullion
• Kee: How to use short-based ETFs
• Lowell: Playing silver and currencies
• Kahn: technical guide to volatility
• Lydon: How to use VIX ETNs
• Cordier: Use options to ride volatility
• Ashbaugh: Uncertain footing for S&P 500
• McMillan: History paints a bleak picture
• Murphy: Making money in mobile
• Claussen: Viva la vega
• See the full special report

Without a doubt, brokerage firms are more interested in generating fees from your invested dollars than in protecting your wealth. Therefore, it is our responsibility to protect our own well-being. We must incorporate risk controls into everything we do, we must accept the weakness in the economy, and we must be willing to move to cash or the short side of the market from time to time.

After a slight bounce back, I expect market declines to resume in June. You can buy short based ETFs to take advantage of this, but limit your entry levels to inflection points so you can control risk. I watch ProShares UltraShort Dow30(DXD 28.80, +0.29, +1.02%), ProShares UltraShort QQQ (QID 17.37, +0.21, +1.22%), ProShares UltraShort S&P 500(SDS 33.83, +0.42, +1.25%), ProShares UltraShort Financials(SKF 21.15, +0.24, +1.15%), ProShares UltraShort Real Estate(SRS 27.78, +0.42, +1.54%), ProShares UltraShort Russell 2000(TWM 20.30, +0.43, +2.16%), and iPath S&P 500 VIX Short-Term Futures ETN(VXX 29.25, +0.85, +2.99%). After the initial cover and profit opportunity in mid-May, we have not re-entered the short side yet. We plan on selecting a few of these again soon.

I will show you two simple ways in which you can manage your risk in any market environment regardless of economic conditions, and without sacrificing time or lifestyle.

Before we get there, as outlined in my MarketWatch column for May, the market offered obvious sell signals late in the month of April. Read Kee's May column.

Within that column, an obvious technical indicator was revealed that acted as a precursor to the declines that soon began. As individual investors, your responsibility is to recognize the signals before they come; we cannot rely on our brokers to tell us to move to cash anymore. Instead, they are likely to tell us to buy more. In fact, so will the media. On CNBC the morning that I wrote this column, the anchors were explaining how investors could make significant amounts of money by buying the ultimate low. They seem to be suggesting that the ultimate low had already come. The date was May 24.

Unfortunately, I believe they are wrong. Instead, according to the Investment Rate, which is the most accurate longer-term stock market and economic indicator, the market is headed substantially lower.

Regardless of being right or wrong in that regard, there are two obvious indicators that individual investors can use to monitor the market for buy and sell signals. The first is relatively easy, and it helps explain why I believe the financial news anchors are wrong.

When the market bottoms, it almost always happens in coordination with widespread capitulation (we are not there yet). When the fear in the market is so widespread that everybody throws in the towel, proactive investors step in to pick up the pieces. The only reason they can do this is that they did not listen to a broker who told them they should hold onto their investments all the way down.

Instead, anyone who was able to invest their wealth again after the market hit the lows in March 2009 also moved to cash well before that. Identifying the peaks is just as important as identifying the bottoms, but there is usually a more subtle indicator when the market tops. That indicator is complacency.

Therefore, an individual investor looking to manage his wealth in the face of the third major down period in U.S. history, according to the Investment Rate, should identify bottoms by looking for capitulation as we witnessed last March. Then, identify tops when the market is complacent, as noted late in April. Most often, these opportunities only surface once or twice a year.

Keep it simple:

• Capitulation: This is a reason to buy. If you are passive, do not buy at any other time.

• Complacency: This is the best time to sell.

We have just had a significant sell signal, the market has just begun to decline, you must manage your risk and protect your wealth, and I recommend that everyone adopt proactive strategies that can work in any market environment immediately. Some proactive strategies will allow you to do it without sacrificing time or lifestyle too.

In next month's column, I will provide insight to some proactive strategies that you can begin using today.

In June, protect your wealth. Then start doing it all the time, for the rest of your life.

These recommendations may have already been disseminated to subscribers of Stock Traders Daily.

Thomas Kee is president and chief executive of Stock Traders Daily and the author of "Buy and Hold is Dead: How to Make Money and Control Risk in Any Market."