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"Trust, But Verify"




-Attempt to decipher the lowest-risk entries and exits based on historical probabilities after definable events (e.g. what happens after Investor's Intelligence reports fewer than 15% bears?).
-Use investor/trader sentiment, primarily using real-money measures, across a variety of time frames to define a low-risk, high-probability chance for profit, then use any number of simple price-based setups for entry.

Key themes:

-Don't take anything for granted. Put theses to the test whenever possible.
-Many pieces of "wisdom" are far from it. Key among these...that good economic numbers are good for the stock market. Evidence suggests economic releases are more of a contrary indicator than anything.
-Despite the idea that "everyone" is a contrarian, very few actually base decisions primarily based off sentiment. It doesn't matter if something is well-known; traders have to act on it, or against it, for it to lose effectiveness.
-Market dynamics are ever-changing. Always pay attention to recent, as well as distant, history, to determine if cycles are changing (e.g. the rise of program trading has adversely affected some previously effective indicators).

Outlook for the financial markets:

-More choppy conditions are likely. We can point to several pieces of evidence suggesting investors have fully priced in further market gains, usually a precursor to them losing money. However, the "smart money" indicators we follow have not begun betting against the market en masse, and with a generally up-trending market, we find that historically that combination leads to further gains. So we should see more large swings as the two groups assert themselves at either end of the range.

Thoughts on controlling risk and staying in the game:

-It's important to define risk in the context of greater market environment. Don't short into an overbought condition just because it's overbought.
-When possible, define probabilities to outcomes based on history. The market is ever-changing, we know that, but history provides excellent clues. Most ideas can be framed into a testable hypothesis.
-Don't fret just because the Dow had its worst close in two years (or some other hyperbolic media headline) out other times that has happened, and what occurred going forward. It's difficult when capital is on the line, but distance yourself, be objective, and try to define probabilities.
-Money management is the closest thing to a holy grail there is. Spend less time researching the newest indicator, and more time figuring out the optimal position size for your strategy and trading style.

Select content:

This is One of Those Times

Go Where the Assets Aren't

Good Bye, New Highs

Stock-specific Risk

A Different Structure

At Home on the Range

This piece gives a pretty good overview of how I approach things

Outside reading:

-Fooled by Randomness, Nassim Taleb
-Against the Gods, Peter Bernstein

If I could give one piece of advice to attendees...

-Don't take something you read or hear on TV for granted, no matter who it's from. Question Reagan said, "Trust, but verify."

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No positions in stocks mentioned.

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