Context is the critical element in your search for opportunities, not a price and direction forecast.
Enthusiasm, what Greenspan called back in the 90’s “irrational exuberance” is the hallmark to a late stage of a Great Bull market, like it was in the late 90’s.
The experienced investor, no matter his rational persuasion, knows what phase the bull market cycle is in through its reaction to the news.
In today’s environment, the economic news has finally caught up with the market. Now you hear the media pundits relate higher expectations based on the more good news to come, so prices advance and bad news is ignored.
However, in another context at a different phase of the market’s cycle, the same bit of good news is ignored and bad news leads to higher prices as the market climbs its proverbial wall of worry.
As a student of the markets, a strategy developer, a trader or a capital manager, the foundation of your work is the market’s CONTEXT.
In order to determine what phase the stock market is in, one only needs to identify the collective behavior, the way it reacts to the news.
An experienced trader naturally has an ability to think independently of what the industry and its media proxies are expecting. It indeed is essential, to stand above the mob, and see more objectively.
But that thought was just to get your attention and provide a clear example of how we all use the backdrop of the market daily without giving it much thought.
Events occur, that can be price based, monetary based, socially based or economic base. It does not matter. They can all have the same value in a vacuum but put them into different backdrop – a different environment – and there is a variance in the market’s reaction.
Context no matter the data used for your forecasting method or your trading strategy, the background in which that data is streaming gives the prediction of direction, it’s when and it’s how much.
If you get the condition right, you will implement the best risk management available; you will avoid entry into the market.
Furthermore, with the correct condition predicted the best strategy from your library would be engaged to take full advantage of the opportunity.
Jack F. Cahn, CMT
Jack Cahn trained under George Constantine and Robert Farrell at Merrill Lynch in the late 70’s before joining mid-west regional broker R Rowland and Company where he was head of technical market research until 1989. Jack formed his own company in that year which sustains through today under the brand of Thinking Man’s Trader (TMTraders).
Jack is a Chartered Market Technician; he sits on the international advisory board of the Market Technician’s Association Education Foundation. In the 9o’s he was a board member of the MTA association. For five years Jack was the editor of the MTA newsletter and in 1995 he chaired the annual MTA conference in Las Vegas. The Market Wizard’s conference included speakers who are subjects in Jack D. Schwager’s book.
More recently Mr. Cahn gave a presentation on a new approach to Technical Analysis and price based strategy development. In 2016 Jack introduced this topic of “Context” based analysis in a seminar at the local Brisbane chapter of the Australian Association of Technical Analysis.
TMTraders produces 100% price based services and products including a market scenario planner, volatility reports with risk/reward rankings and algorithmic trading systems.