Wednesday, May 21, 2014

Market Update & Importance of Systems

There are certain characteristics that determine success in the market and are critical for long-term performance. These include:

  1. Having a system that one can follow every time because trading is a game of probability. If one has a system with good performances rate, this system can only generate positive results, if it is used every time. Even in troubling times.
  2. System should be updated with lessons learned and then back-tested to ensure that the improvements will not undermines system's performance in some other way.
  3. System must be agile enough to anticipate and adapt to trend changes, rather than adamant adherence to wrong analysis. 
  4. All other information like patterns, technicals etc, which have been determined to be only supporting indicators, should only be treated as supporting indicators and trade should not be based on these supporting indicators.
  5. Easiest and most obvious trade is typically, the wrong trade. Therefore, use your edge to decipher the right trade versus easy trade.
  6. Having belief in the system is much more important because at the end of the day market pays & without a solid system, trading will be all over the place.
All of this being said, IPM Trade Matrix remains long. It will exit longs on a decline below lows set in the IPM turn window in prop indices. Details will be provided in next update.

Overall, it seems like people have now become pre-occupied by the ending diagonal pattern. If ending diagonal was really unfolding, it would have resulted in a sharper market decline over the last few days (when we had first discussed this possibility) without it being discussed so widely on the internet. But instead, market has remained steady. This suggests that the market instead is consolidating, in a pattern normally missed by the masses. This same pattern was seen in late 2009 and has been seen at other times. 

It results in a continued movement in the primary trend. Therefore, we could see a sharp rally out of the IPM bottom window.

We will discuss this pattern in the next update along with prices targets and stop levels.

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