FIGURE 1: IS THE VIX THE HOLY GRAIL? A low VIX reading has provided some good insight into pending highs (green vertical lines). But if you relied on low VIX readings, you’d have missed the 1991–2000 and 2004–07 market moves (red vertical lines).
CHARTING
Can It Be So Simple?
Is instinct all it takes to succeed in the markets? Do you really need to use indicators, chart patterns, and trading systems? Find out how this trader’s approach is just a little different from the way most traders approach the market.
We all try to find a way to trade in the direction of the most dynamic trends in hopes of watching price — and our trading accounts — explode favorably. Some traders use a trend-following model to accomplish this. Others prefer countertrend or reversal methods that seek to identify pending changes in direction before they even show up on the chart. The tools used to achieve these goals are varied. There are tons of technical indicators that attempt to predict changes in momentum, unseen weakness or strength, unappreciated changes in volume, underlying complacency, or basic trendiness.
Then there is the price approach. We can try to identify price patterns that have been successful in the past, we can attempt to label waves on price charts, we can use point & figure charts to remove the noise of price fluctuations, or we can use any number of available techniques. Yet despite all of these ways to manipulate market data in search of an edge, none have proven to be the golden ticket. One of the biggest benefits of today’s high-powered trading technology is that we can test anything that is quantifiable to see if it really works, both in today’s and yesterday’s marketplace. But do these entry strategies perform better than a random entry?
FIGURE 1: IS THE VIX THE HOLY GRAIL? A low VIX reading has provided some good insight into pending highs (green vertical lines). But if you relied on low VIX readings, you’d have missed the 1991–2000 and 2004–07 market moves (red vertical lines).
THE HOLY GRAIL
If one particular method was head and shoulders above the rest (and I’m not talking about a head & shoulders price formation), we’d all know about it and the edge would disappear shortly thereafter. Is there a way to get in on dynamic trends without spending the rest of our lives searching for the holy grail? There is, and it has to do with keeping things ridiculously simple, focusing more on the exit strategy as opposed to the entry strategy, and expanding your horizons to make sure you catch the trends no matter where they are occurring.