The Jester Sings?

• Derek Hernquist
• January 28th, 2010

"You don't need a weatherman to know which way the wind blows"  Bob Dylan

You do, however, need a method for receiving signals from the market.  When the winds shift, we need a plan for adjusting our sails.  Markets don't go from bullish(winds prevailing from the SW) to bearish(from the NW) overnight, but subtle differences in speed and direction need to be addressed.

Like many who've walked the market's path, I started with one piece of data I could study and kept adding until it became paralyzing.  At that point I was able to cut out redundacies, get to the core of what had proven truly effective, AND match my temperament...a short and manageable set of measures.  Part of the reason I beg newbies to keep it simple is because I'd like to save them the time I wasted in going from simple(dumb) to complex(dumber) to simple(best).  That's good advice, but probably disingenuous.  It's like sowing one's oats in your 20s...learning for yourself what "the field" has to offer probably saves you from a midlife crisis later on!

Where have I settled? A simple combination of time and price...if $SPY has been above its 10 week MA all 4 of the past 4 weeks, I'm primarily a long investor.  Above the 10 week MA for 0 of the past 4 weeks, I'm primarily a short investor.  Anything outside of those I consider muddled and shorten my frame into a 2 way trader.  That's where last week's action puts me, and based on the inputs to the indicator it's where I'll be for the next month at least.  Not bearish, not bullish...just means I will exit in full each time rather than holding some in hopes of catching a longer move.

Why not fully switch over to the bear side? If I had a dime for every time I called a turn in the market, I'd be rich...unfortunately I'd owe each of those dimes back for the many times I've been wrong.  So I don't waste my time anymore... adjusting size and holding period on evidence of shift works just fine for me.  I hope every trader has an objective measure for telling them when what's been working won't continue to work.

Tickers:SPY

blog comments powered by Disqus