Friday, September 30, 2016

Looking for Your Trading Edge

Just thought I'd update this post on what it means for stocks when we see a high degree of institutional participation in the US equity market.  Yesterday's reading was in the highest quartile, which has been associated with significantly above average returns over a next 10-day period.  Interestingly, we also saw an elevated equity put/call ratio, also associated with favorable next 10-day returns in SPY.

Meanwhile, several of my cycle measures have been pretty toppy.  

There are times when things line up and there are times when they don't line up.  A useful psychological exercise is to assume that, at some point, everything will line up.  What would you need to see for such a line-up to occur?  Anticipating potential price paths is a first step in preparing to trade them.  Being aware of when things aren't lining up is a great way to avoid overtrading.

Further Reading:  When to Exit Winning Trades