I did not mean to set myself apart. Even though I have been through different types of markets, I have not followed the market as closely as I have over the past few years. Given this and how the market is constantly changing where it now has qualities different than anytime in the past, I am also in store for surprises along the way. The past has taught me how that market can and will change, and how particular plays may work in one part of the market cycle and not work any longer in another part of the overall market cycle. But then this constant in the market called "change" is what makes following the market interesting and a life long learning process. Expecting change to happen helps prepare me to be on the lookout for evidence that the market has changed.
There are couple ways that come to mind that I think can help a trader detect change in the market. One is that there specific approach, or system, is causing them to run into a series of misses which is out of the ordinary for their experience with the system that they use. The stocks can such a system identifies for trades can appear to have altered their behavior for instance. This is a good time to *stop* trading and first figure out if it is you, the trader, that has changed by perhaps second guessing your system by for example staying in a stock too long when your system has told you to sell, which can happen if you begin to get thrown around by the market and you start acting part of that crowd that operated by their emotions. Another possibility is that the market that has changed. If it is the market that has changed, then you need to determine if it is a temporary change, like an oncoming market correction, or is it more of a permanent change that will dictate an adjustment to your system. The more "generic" your system is in having been backtested over a history of the market in different types of markets can help provide the trader with a system that can be trusted in the changing market with infrequent need to change it.
Another more scientific way to determine something has changed and altered you profit profile (performance) is by following your equity curve. This is the most objective method. When your equity curve starts to turn down then you need to stop trading and evaluate the situation. Perhaps you just need a break from trading. Or perhaps you need to go through a procedure that will help you identify what has changed in the market. Paper trading may help you to determine what has changed. Also keeping a trader's diary will help too.
A very important tool that can help the trader not only follow the markets but also reflect on the choices that they have made in the markets, their performance in specific situations, is keeping a trader's diary. This is where each trade is listed along with why the trade was selected, what conditions existed when you entered the trade, and what criterea needs to be met in order to exit the trade. Also the trader's observations about the market can be kept in this diary. Then at a later time you can look back to see how well you did to help you discern what helped you to your successes or failures. Here is where you can start noticing patterns that will allow you to adjust your approach or system to the market. Also this diary will become a record of the market itself that you can reflect on at a later time. This can help you answer questions like what happened before when there was a similar situation in the market, like the funds moving their money back into the stock market from a large cash position. What types of stocks were the first to move, for instance. Did these same stocks carry through the market cycle or did the money quickly move from those stocks to other stocks pehaps in a different industry or sector is another question that a diary can help answer. In this way the trader can get a better perspective on how money moves in the market, how market sentiment changes, how sector rotation occurs in response to for instance overvalued industries or in respons to a shift in fundamental outlook of a sector precipitated by changes in the economy. And most importantly, a trader can learn what works and does not work for them including noting this for different types of markets. Much can be learned from keeping a trader's diary.
You have made IMO a very important observation: that our economy as time goes has become an integral part of the global economy and is vulnerable to changes that occur abroad. Also evidently the market has recognized this too. As the economy and how it works continues to change abroad, so will ou own economy change, just has our economy will continue to have its impact on the economy of other countries. The Internet with its ability to connect people across the globe in ways that was not possible just a decade ago I do believe can dramatically change this landscape, both politically and economically. It will be interesting to see where this leads. As you said, the more closely connected people are, the more aware they are of each other where geographical boundaries become much less significant in this way. This will help change the political landscape along with the economic landscape which has already been changing into a more global economy.
Just some thoughts.
I also want to say that I am not proposing that everyone start shorting stock. Shorting stock is IMO only for the very serious and experienced trader. It is tricky to short stock in a bull market. Paper trade first before attempting this approach to trading. If you do not need to generate income like a full-time trader does, perhaps it is better to avoid this type of market play. At least wait until a full-blown bear market before attempting this. I personally have not shorted before. I have watched others short, most having shorted unsuccessfully.
Bob Graham |
