This has been a month of great moves. All month the financial media has been talking up a massive fall in the US markets yet the SP and Dow have been racking up record after record. How do we reconcile the vast ocean that separates perception and reality ? We have been told every day that traders are shorting the market, yet 100s of points later the market is still rising and will most likely continue to climb.
This is a phenomenal learning curve to experience for any trader that sincerely believes the rubbish that comes from analysts and financial journals. The market will eventually fall but in the interim it will wipe out every short contract in iits way. Believing in the hype and calling tops or bottoms and preempting changes in market direction is a brokers wet dream. No sane person attempts that unless they have vast amounts of margin capital or inside information.
In the age of computers, algorithms and vast permutations the simple trader that trades accounts under 10 million dollar is safer following the market. He gives up a few pips at the top and a few pips at the bottom but he makes that up in not getting snowballed for weeks on end my market makers that are happy raking in massive amounts of margin calls on short positions.
The Noise trader approach where you piggy back on the larger market moves and stay in as long as you can until there is a turn in sentiment has been the preferred trading method for many of the most succcessful traders. In fact it was so effective the famous Mr Summers wrote a paper about it. Check out the paper below on Noise trading. And see if it works for you.
The Noise Trader approach to Finance
How Noise Trading Affects Markets: An Experimental Analysis
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