There’s always a news story blowing in the wind that can catch your attention and in turn shift your bias and focus. However, the first half of 2016 seems to have contained an abundance of such stories ranging from profit margin contraction, Fed policy, country’s leaving unions, police shoots, and whether certain political candidates are either racists or criminals.
As traders our job is to focus on what the market is telling us – for many of us that involves a form of analysis based on price movement and for others it incorporates corporate reporting and macro economics. No matter your market paradigm, staying focused on what matters is crucial.
This is why I thought it’d be a good idea to share the nine rules of research as created by Ned Davis, founder of the well-respected market research firm, Ned Davis Research…
- Don’t Fight the Tape – the trend is your friend, go with Mo (Momentum that is)
- Don’t Fight the Fed – Fed policy influences interest rates and liquidity – money moves markets.
- Beware of the Crowd at Extremes – psychology and liquidity are linked, relative relationships revert, valuation = long-term extremes in psychology, general crowd psychology impacts the markets
- Rely on Objective Indicators – indicators are not perfect but objectively give you consistency, use observable evidence not theoretical
- Be Disciplined – anchor exposure to facts not gut reaction
- Practice Risk Management – being right is very difficult…thus, making money needs risk management
- Remain Flexible – adapt to changes in data, the environment, and the markets
- Money Management Rules – be humble and flexible – be able to turn emotions upside down, let profits run and cut losses short, think in terms of risk including opportunity risk of missing a bull market, buy the rumor and sell the news
- Those Who Do Not Study History Are Condemned to Repeat Its Mistakes
You’ll notice that nothing is profound among the nine. You likely have heard some version of each of them before. But when the voices get loud and volatility picks up, it’s nice to have a reminder in what’s important and why we do what we do.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.