This week continued where last week left off, but with a couple of significant extras.
The Dow and Russell joined the S&P and Nasdaq above their 200-day moving averages as the market continues to confound.
This week it was a combination of a weakening dollar, and on Friday an unexpectedly good jobs report.
Just a couple of really important points to emphasise this week.
You don’t need to be a soothsayer:
I was speaking to one of my serial winner members, when she mentioned she was tempted to go short the market.
I asked why, when the markets were looking so bullish.
Her answer was all about her opinion.
So, you’ll know how that went, with my concluding comment of “Only trade what you see”!
But it raised an important consideration …
Do you feel the need to outwit the market? If so, why?
We make plenty of profits by simply following the obvious signals, so there is no need to second guess.
Furthermore, unless you’re trading with extraordinary amounts (like a hedge fund or institution) you’re not going to have too much difficulty getting in and out of positions. Therefore again, there is no need to second guess the markets and there is plenty of opportunity without having to pick out the highs and lows of each move – which is a mug’s game in any case.
Follow the trail of the big money
At the heart of our success is our ability to easily identify where big money is either already congregating or where it is lining up to congregate.
The OVI is the clear winner in identifying big money activity, and it’s the only one that has unchallenged empirical proof.
But when you do have OVI clarity, other big money markers become more powerful, namely the post-earnings gap, the volume pocket and the 200dma.
The chart must be explainable by way of actual behavior
One of the big mistakes most technical traders make is that they think the pattern is what’s important. Hence you get so many indicators, with the vast majority having no behavioral explanation behind them.
A pattern without a behavioral causation is just a pretty pattern. It is vital to be able to explain a pattern by way of trading behavior.
All of our favoured setups are explainable.
- The OVI reveals hidden position-building leverage
- The volume pocket exposes large accumulation activity
- The earnings gap alerts large investors to new potential
- The 200-day moving average is one of the only universally relevant indicators
- The price consolidation with a volume consolidation can unearth a drying up of selling activity, hence the ensuing breakout may be uninterrupted.
Trade what you see, and explain what you see by way of behaviour, and you’ll improve as a trader.
This week’s OVI market review has a plethora of winners, plus a few nuggets to consider for the next few days.
Stay safe and please do follow me on Twitter (@GuyKCohen) and our OVI Facebook page (www.facebook.com/ovitradersclub) … you may discover the odd nugget in those places too!