Suffice to say there are many analogies between poker and trading. Knowing when to shift gears, probe for information and feedback, and press edges or sit out are common themes between the two. As a swing trader using timing techniques to gauge market health, improving my awareness on a daily basis is a priority. Avoiding periods when errors are induced and compound instead of capital is frequently in my thoughts. Being alert to whether a market is robust or not on our horizon has a direct impact upon our returns and bottom line.
All the data we need to quantify this is available in our own records: our average gain, our average stop level, and our average holding period. Knowing this we can scan our stock universe and determine how robust the current period is. For example, assuming our average gain is 2R and our holding period is 10 days we can scan our universe for stocks that have had moves to this extent (whether dollar amount, percentage or a combination of the two) over 10 days. In doing such a scan over a 5 and 10 day period I have a return of 58 and 126 stocks respectively. As I trade 3 month momentum, stocks that meet this requirement over 5 days is 25, and 85 over 10.
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| Robusto or Busto Market? |
The significant of using this approach is that I am merging my personal trading data with corresponding stocks in my universe that meet the same criteria. In a robust market I should expect to see a much larger result set than I am currently. So, clearly if my average expectation is being meet by such a small number of stocks, I in turn should not expect to achieve typical results. if anything I should be concerned of the other spectrum of consequences by trading in this environment.
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