One thing I analyze after i am creating my daily trading plan is the current market classification. - futures
The reason why? Because, according to which scholar you read, the marketplace itself contributes as much as 50% of the return of individual stock gains/losses. It makes sense in my experience then how the most critical single factor needs to be the to begin with to analyze.
In the event you only acquire one thing right, it should be the current market condition.
I look at market symptom in 2 time dimensions: Long-term and Intermediate term. The time periods I decided are specific for the way I trade and the typical periods of time I turn to hold individual positions. I believe that your time and energy frame should affect your image on the market. In my opinion one size fits all strategies usually are not suitable for individual success. Therefore, I consider long lasting is the last 180 days and short term is the last 10 days.
I look at long term market symptom in 2 dimensions: Price level and Relative Volatility. Without entering the precise techniques I personally use to classify individual states, the reality is i have 3 price categories: Bull-Sideways-Bear, about three volatility conditions: Quiet-Normal-Volatile. This results in a 3�3 matrix, with 9 possible market condition states. (See table below)
Looking back in the last 13 many years of S&P 500 price data (that's as long as the S&P ETF: SPY, has price data available), I analyzed the statistics of the returns from the marketplace for the following day based on the market condition as defined, and figured that there were distinct variations in the outcomes for every from the 9 states. It turns out that there are just 4 from the 9 states where, on average the next days return is positive.
It is really an extraordinarily important bit of information to know when examining trading opportunities for the following day, particularly when your trading instrument or "target" is strongly correlated towards the US large cap market. The image here is an illustration of this industry classification matrix in action. It shouldn't surprise you to view the marketplace is now (by Oct 4, 2008) in Bear Volatile: the worst condition for expected returns.
What's worth noting is that my analysis model classified the marketplace as Bear Volatile on Sept 9, and has remained there from the time. Industry is down well over 10% in that time period. 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 the long term investment program in addition to inform temporary trading strategies. - futures