Systematic Trading Plans based on the close of the market is a superior way to view the technicals. Almost every day investors and traders await some bit of information and often over-react to that number in both the reckless buying and selling of stocks.
We see this with GDP (Gross Domestic Product), Job loss reports, CPI, PPI, confidence readings, and more. Years ago, the focus was on every Thursday when the M1,M2,M3 numbers were given and moved markets.
The revisions we see are very important data points that an economist might use in a model. The data is always backward looking as the saying goes, “past performance is no guarantee of future results.” The number of the day always presents two sides of the coin. A data point indicating faster growth in GDP can be interpreted as too fast and that inflation and the economy are recovering on their own. The other side of the coin is that if GDP is lagging, we may need more stimulus programs and the Fed will be more accommodative for a longer period of time. These data points make good news stories and debates for TV and newspaper columnists.
The number of the day does not help to measure the supply and demand characteristics of the stock market participants. Technical analysis tools do calculate a value that when properly applied with buy and sell rules determine what actions should be taken. The value should be calculated at the end of day when market participants have had time to consider the overall implications of these numbers.
If sellers come into a market over a period of time, the trend will change and their opinions as what they are actually doing can be seen in the marketplace. If buyers outweigh any selling, the upward trend will continue.
Systematic trading rules can help you keep the noise caused by the “number of the day” out of trading decisions. Plan your trades and trade your plan.
For more information on systematic trading plans, contact mark@seleznovcapitaladvisors.com
