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The concepts below are vitally important in order for us to successfully navigate the volatile and emotionally-draining financial markets.
"Volatility to ignore" vs. "volatility to respect" has nothing to do with % declines in the market; it is based on data about the market's long-term health.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
If the data says the odds favor higher highs (and higher profits) = volatility to ignore.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
If the data says the odds are mixed or favoring lower lows = volatility to respect.
The objective is to stay with the primary trend and make money, rather than avoid all volatility.
If your primary objective is to avoid market swings, drawdowns, volatility, and stress, it is going to be very difficult to stay invested and participate in very large market moves that can occur over many years.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
It is not possible to build a model and change the simple fact that volatility is a normal part of all markets.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
The first step in developing a trading system or investment model is to understand how markets and human emotions operate in the real world.
The real world has volatility, emotions, an intense human desire to be right, ego, fear of loss, fear of missing out, bias, etc.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
All of this (and more) needs to be considered when building a trading system or model.#Markets $SPX
The nature of primary trends, and normal and to be expected countertrend moves, tell us that if we are invested with the long-term primary trend:
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
We should feel good.
We should feel bad.
We should feel good.
We should feel bad.
Repeat until primary trend ends.
Therefore, we should not be surprised when we feel bad during normal and to be expected countertrend moves; it is the nature of the beast.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
Realistic expectations are key to success. Unrealistic expectations will lead to stress, emotional swings, and disappointing results.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
Market fractals tell us the concepts below apply to all timeframes: one trading hour has primary and countertrend moves; the same can be said for a trading day, week, month, year, decade.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
We should feel good.
We should feel bad.
We should feel good.
We should feel bad.
If we knew the market was going to fall 10% over two weeks, and then rally to a new all-time high over the next six weeks...
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
...should that be treated the same as a 10% decline that does not see a new high for 2 years; and during the two years bonds gain 8%?
Time & Opportunity
Understanding in advance and reminding ourselves (a) countertrend moves are normal, (b) it is not possible to feel good all the time, allows us to conserve emotional/mental capital.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
When emotional/mental capital reserves are low, the odds of errors/poor decision making increase.
Any input that is not related to your process is drawing down on limited emotional/mental reserves.
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
Reserve Drainers:
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
Debating about markets, politics, economic outlook.
Trying to read every bullish/bearish article.
Trying to review every chart/input.
Listening to evey talking head.
The market is paying attention to all of it. We handle it by paying attention to the market.
Game plan today is the same as every day:
— Chris Ciovacco (@CiovaccoCapital) February 7, 2018
Are we allocated prudently based on the facts in hand?
If yes, choose "do nothing" alternative.
If no, make an adjustment to get back in line with the hard data.
No predictions, no forecasting. #Evidence #Probabilities #Markets