I have been creating a very large database of breadth-related information for U.S. stocks. The database goes back more than 20 years and includes daily breadth information for the overall market (NYSE, SPX) as well as breadth information for individual market sectors. It also includes the number of stocks giving daily buy and sell signals across multiple technical indicator systems, as well as breadth data broken down by factor (growth vs value stocks; small vs. large cap stocks; etc.). The database, when it is completed, will provide a look at forward returns from 3 to 50 days out and identify when returns are statistically significant relative to average returns.
What that means is that I have all the previous days' signals that cover the current trading day, and I have new trading signals created by yesterday's action. That allows me to identify when forward returns are most promising due to the lining up of different signals and the lining up of signals across different time frames.
Intraday overbought/oversold criteria are used to time entries in the larger breadth patterns. There is no intraday trading, however; the breadth patterns are meant to capture short-term swings and longer-term moves in the indexes and stock sectors. That provides diversification by time frame as well as by market.
Rules define stop and take-profit levels, as well as money management criteria for adding and lowering position sizes based upon the shifting of odds as markets move. This requires checking in on the market in the morning and afternoon, but does not require ongoing tracking of minute-by-minute action.
It's early in the game, but so far the project is profitable and is showing promise in terms of identifying the parts of the market with the greatest odds of success. The inclusion of sectors creates multiple ways to win (for example, being long one sector with good historical odds and short another with poor odds and volatility adjusting the pair to be completely market neutral). The balance of positions--across markets and across time frames--helps smooth the P/L curve.
The most important finding so far, however, is that this approach has taken all of the drama out of trading. It has freed me up for my many other life priorities and yet is every bit as challenging and fulfilling as short-term trading in terms of problem-solving and the search for opportunity. It is possible to trade for a living without living for trading. So many of the problems identified by trading coaches are a function of the drama created by becoming attached to short-term market behavior. For me, the best way to work on my psychology is to trade within a framework that draws upon my greatest interests and strengths.
Life is too short for drama.
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