As far as the market goes, this rally has me stumped. So many
divergences have me believing it must go lower, yet it continues to forge ahead.
Today’s move up was especially impressive. Good breadth and volume as well. As
of right now I feel it is too extended to buy aggressively and too strong to
short aggressively. Therefore, I need to wait for it to come to me before
attacking.
What makes the market move? Liquidity? Momentum? Foreign markets? News events?
Economic data? Earnings? Bond yields? Gold? Oil? Sentiment? Answer: all of the
above and more.
One difficulty in trading is sorting through all the information available to
help you decide when and what to buy or sell. Even if it were possible to
analyze all of the above instantaneously and accurately you still would not be
able to build a perfect trading system.
The nice thing is, to trade effectively, you don’t need to analyze and
understand all of the above. In fact, those who try many times find themselves
at a disadvantage. They become easily confused and paralyzed by all the
conflicting data. Whereas those that understand what few bits of data are
important to them can quickly execute and more easily manage their trades
without constantly second-guessing themselves.
There’s a saying that a butterfly beating it’s wings in China can cause a
hurricane in the U.S. While this may be true, meteorologists aren’t worried
about Chinese butterflies. They focus on the things that are most important to
hurricane analysis. Determine the pieces of data that you feel provide you the
best edge in your trading. Then understand that information as best you can.
Filter out everything else. It is just noise. When your data says there is an
edge, pounce. When it doesn’t, stalk.
Best of luck with your trading,
Rob
Rob@HannaCapital.com
For those who may be looking to expand their
knowledge beyond just market timing, my
Hanna ETF Money Flow System utilizes the VIX in generating trading
signals for spread trades.
Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.
