Profitable ETF Trading Techniques - Market Classification

One thing I analyze once i am creating my daily software system will be the current market classification.

The main reason? Because, based on which scholar you read, industry itself contributes as much as 50% of the return of individual stock gains/losses. It seems sensible if you ask me then the most significant single factor needs to be the first place to look into. - stocks

If you only obtain one thing right, it ought to be the current market condition.

I look at market condition in 2 time dimensions: Long term and Intermediate term. Time periods I selected are specific to the way I trade and the typical cycles I turn to hold individual positions. I have faith that your time and effort frame should affect how you look in the market. I believe one-size-fits-all strategies usually are not well suited for individual success. To that end, I consider long term to be the last 180 days and temporary to be the last 10 days.

I examine long term market overuse injury in 2 dimensions: Price range and Relative Volatility. Without going into the particular techniques I use to classify individual states, the reality is that I have 3 price categories: Bull-Sideways-Bear, about three volatility conditions: Quiet-Normal-Volatile. This creates a 3�3 matrix, with 9 possible market condition states. (See table below)

In hindsight at the last 13 numerous years of S&P 500 price data (that's so long as the S&P ETF: SPY, has price data available), I analyzed the information of the returns from the market for the following day depending on the current market condition as defined, and figured that there were distinct variations in the results for every from the 9 states. Apparently there are just 4 from the 9 states where, normally the following days return is positive.

This is an extraordinarily important piece of information to understand when viewing trading opportunities for an additional day, especially if your trading instrument or "target" is strongly correlated towards the US large cap market. The look here is an example of the market classification matrix for action. It should not surprise you to view industry is now (as of Oct 4, 2008) in Bear Volatile: the worst condition for expected returns.

What's important to note is always that my analysis model classified the marketplace as Bear Volatile on Sept 9, and it has remained there since. Industry is down well over 10% because period of time. It's down over 20% since entering Bear Quiet mode on June 03, 2008. Being alert to market condition can prevent those forms of losses from occurring and add tremendous value and insight to your long lasting investment program in addition to inform temporary trading strategies. - stocks

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