Find basic tendencies of market | stockbee

11/10/2014

Find basic tendencies of market



If you want to trade the market find the basic and structural tendencies of the market.

A structural tendency of market is some kind of observed behavior of stocks that repeats . For example stocks with surprisingly good or bad earnings tend to go up or down for several days post announcing such earnings . It is called PEAD (post earnings announcement drift). If you research this and find this actually happens , then you can then design a process to identify such stocks daily and exploit the phenomenon to try and make money.

Similarly if you study stocks that go up a lot in short period of time like say 25% plus in less than a month and you find that these stocks had range expansion at start of such move then you have a structural basis to go with . Then you can build a process to identify such stocks.

Or if your study shows that when stocks go down a lot in short period of time of say 5 to 10 days, then they tend to bounce back hard for couple of days from such deeply oversold level and this phenomenon repeats. Then your task is cut out to try and build process flow around it.

Or if you find that stocks that have gone down 50% plus in less than a year tend to perform better in next one year then you can systematically isolate these kind of stocks and then build a process flow to exploit that.

The structural tendencies of stocks give you a process oriented solution to finding opportunities. If you select the right kind of market structure to focus on you increase probability of success in the long run (there still will be periods when your structural phenomenon may not work due to some change in market structure or your own failure as a trader to exploit that , but in both cases it is a fixable issue.

Sooner you find an exploitable phenomenon in your trading career better it is as it will save you time , frustration and money. Sooner you find an exploitable phenomenon in your trading career better it is as it will allow you to intensify your focus on getting process right.

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