Tuesday, December 12, 2006

Changes To The Trading Psychology Weblog

For a few years now, the Trading Psychology Weblog has been the place where I track a number of market indicators and the short-term movements of the stock indices. Starting today, I've made a subtle but important change to the Weblog.

The first portion of each Weblog entry consists of Market Ideas from various blogs and sites across the Web. I try to cull out unique perspectives that are of practical relevance to the economy and markets. The links are a great way to discover interesting work being done by bloggers across the world.

The second segment of the Weblog, Market Expectations, looks at some unique facet of the market that otherwise might go unnoticed. Sometimes this will be an indicator; other times it will be a historical pattern. Generally, however, it is designed to provide a big picture for what is happening in the current market.

The third and final Weblog section is the one that has changed. I'm calling it "Market Synthesis", and it now puts together a narrative that integrates the various Weblog measures. Basically, the synthesis is a kind of mental game plan that starts my market day. It is not a mechanical set of ideas to be traded: only my way of orienting myself to recent market action.

The key indicators in the Synthesis are:

1) Average trading price for the day - This enables you to see if we're trading above or below value early in the next trading session;

2) Adjusted TICK - This is a daily reading of the transactions in NYSE stocks that have occurred at the offer minus those that have occurred at the bid. It is normalized with respect to the past 20 trading days, so that a positive Adjusted TICK tells you we had more buying pressure than average over the past 20 sessions. A negative Adjusted TICK informs us that we had relative selling pressure for the day.

3) Institutional Composite - This is exactly the same as the Adjusted TICK, only it is constructed with the large cap Dow issues, not the entire list of NYSE stocks. It tells us whether or not we've had relative buying/selling pressure for the day relative to the past 20 sessions.

4) Demand/Supply - Demand is a proprietary index of the number of stocks across the NYSE, NASDAQ, and American Exchanges that have closed above their volatility envelopes surrounding their short-term and intermediate-term moving averages. Supply is a proprietary index of the number of stocks closing below their envelopes. These are very effective momentum measures.

5) New 20 Day Highs and Lows - This is the number of NYSE, NASDAQ, and American Exchange stocks making fresh highs or lows over the past 20-day period. An excellent measure of market strength.

6) Institutional Momentum - This is a bit like the Demand/Supply data, only it is a single, proprietary index that measures whether a basket of large cap stocks is trading above or below their moving averages and volatility envelopes. Excellent large cap measure of intermediate-term momentum.

All of these measures have been tested for historical patterns that predict the S&P 500 Index over a 1-5 day horizon. They are included in the Weblog because they've been found to be relevant to the market's near-term picture. I'll occasionally post research to illustrate this.

As I write this, there are 840 emails in my inbox--and that's after the spam's filtered out. Every single day I am getting requests to do talks for traders, write articles for traders, meet with traders, etc. While I can't possibly meet all these requests (and appreciate them greatly), my hope is that the Weblog, in its new form, will help you--as it helps me--organize your thoughts for the day. From the blog links to the indicator/research perspectives to the indicator readings, the Weblog is meant as a one-stop read at the start of the market day to help you frame your trading ideas.

I welcome your feedback and hope to make continued changes and improvements during 2007. Thanks for your kind support and interest.