Learning the Market all over again
I’m always renewed in my interest for options trading and generally understanding the market. I just finished readhing “The Talent Code” by Daniel Coyle, a must read for any teachers or coaches and anyone seeking improvement at any skill. AFter reading a series of studies done on chess players, I realized that market wathcing, stock and optinos trading are much like playing chess…it’s all pattern recognition. We each have (or should have) a set of “rules” that define when we get in and when we get out of a trade.
The technical chart patterns are nothing more than just that…a pattern. I reasoned that the better I can get at recognizing patterns, the better trader I will become.
So i’m going back to basics, chapter 1, the beginning. What direction is the market moving? In simplest terms one can look at the daily indexing average or a moving average over x number of days. Does the line go up or down? Probably the simplest pattern to recognize.
Taking it one step further…look at the volume trading for the day. How does it compare to the day before? How does it compare to the volume average? AGain…a very easy pattern to recognize.
Now we combine these two simplest patterns…market direction or variance from yesterday and market volume to give us a matrix of options. Is the market accumulating or distributing? Accumulation with rising prices is a good sign of a either strong bull market or of a market follow through indicating market bottom. Distribution with falling prices is a sign of market top or a bear market.
I’m going to be following these most basic market indicators by studying day by day charts of the three major indexes, the NASDAQ, the S&P and the NYSE. I’m going to become a master at pattern recognition.
Suzanne @ October 6, 2011