Dr. Brett Steenbarger’s recent posts describe why it’s so hard lately to make money in the markets. Brett’s hard to ignore data sets and factual explanation form the basis of smart trading plans – ignore them at your peril. Here’s the key finding that has big implications for your trading plan:

(Note: the point between values 8657 and 9198 where the 125-line is last broken is September 2001 – a historic occasion but not for the obvious reason)

Key Takeaway:
The Dow, S&P and other broad market indices are experiencing a double frustrating whammy of difficulty – low volatility and lower ‘trendiness’ (as shown in the chart above). Trendiness has been trending downward! In particular since September 2001 gains or losses on day one are more likely to reverse on day two. As Brett observes,

We are seeing reduced volatility *and* we are seeing reduced trendiness. That means that traders are able to take less movement out of trades *and* they are less likely to see movement carry over from one period to the next. Is it any wonder that traders are experiencing such difficulty? We have never seen a market personality quite like this one, in which low volatility has also been accompanied by low trending. To blindly hope that the market will “get better” is not a trading plan, much less the plan for a trading career. The good news is that there are trading instruments with far higher levels of volatility and trendiness, and those include many individual stocks.

The Edge that’s Trade-Ideas
Brett’s findings underline the importance of pattern recognition and Idea Generation Technology (IGT) among individual stocks and why a tool like Trade-Ideas improves a trading plan that understands the recent forces at work on the markets.

Stay away from the poor trading conditions of the overall markets. There are always individual stocks bucking the overall trend. Trade-Ideas helps you find them. We often liken the markets to the ocean where the broader markets and major indices are at the surface – often choppy and tumultuous. The sectors and individual stocks, however, exist at lower depths – sometimes in their own current separate from the activity above. Trade-Ideas’ filters remind us of a periscope down that lets you see such movement.

Our next post is a Strategy Session that provides a good example.

Footnotes:

• Brett’s March 6th article, “This research shows why the market seems to go nowhere“
• Brett’s March 10th article, “Why It’s Been so Hard to Make Money in the S&P 500“
• Brett’s March 13th article, “Why Trading is Becoming More Difficult”
• List of other Steenbarger articles from TradingMarkets.com here
• Brett’s other trading blog here
• June Seminar Footnote – To gain a full understanding of how this strategy and others can help you in your trading plan, we suggest you attend our training seminar in June. There we will focus on all the advanced aspects of our software needed to give you an edge against larger, more capitalized participants. We just opened the sign up page so that you can officially pay for and reserve your spot (conference limited to 100 existing subscribers). https://trade-ideas.54solutions.com/Seminar/