We often fall into the value trap – calculating some value for the market, stock, option or other vehicle and then immediately we become the ‘authority’. It’s all over the media, with pundits and experts claiming they are in the ‘know’. If we believe this narrative then eventually we follow someone else’s lead – and that is often not in alignment with our own goals or strategy.
Who can really put a ‘fair value’ tag on the market and feel confident? That may be a snapshot in time, but since market movements are constant and dynamic, trying to pinpoint an accurate value is really useless to an investor or trader. As an options trader, valuation is mostly irrelevant. What I look for is consistency in volume, price action, money flow and sentiment.
The technical tools in your toolkit can help you find patterns in a logical, reasonable and objective way, with importance placed on momentum and direction. No guessing here based on some notion, just the facts. This will serve you far better than listening to some guess by a talking head.
