Another Week & Another Reason Why Systems Win

Just another week. Equity markets down, up, down. Non-stop news. No predictability, but lots of fundamental explanations:

NEW YORK (Reuters) – U.S. stocks closed their worst two-week slide since November with a selloff on Friday as disappointing China growth data sparked worries the global recovery was flagging.

Concerns that Europe’s debt crisis was flaring up again added to selling pressure. Sectors taking the hardest hit were those most closely linked to growth, including materials, energy and financials.

The S&P 500 is now down 3.4 percent from this year’s closing high, after falling 2.7 percent over the past two weeks.

“Everyone is looking for global growth, but the slowing in China and the rising yields in Europe are creating questions about how strong we might expect it to be,” said Brad Sorensen, director of market and sector analysis at Charles Schwab in Denver. “That’s leading to a correction here, with financials especially taking a hit.”

Got a migraine headache yet? Let’s get practical. Answer the following five questions, and you have a trend following trading system–answers that can get you past reliance on the nonstop 24/7 financial spin cyvle:

1. What market do you buy or sell at any time?
2. How much of a market do you buy or sell at any time?
3. When do you buy or sell a market?
4. When do you get out of a losing position?
5. When do you get out of a winning position?

Said another way:

1. What is the state of the market?
2. What is the volatility of the market?
3. What is the equity being traded?
4. What is the system or the trading orientation?
5. What is the risk aversion of the trader or client?

You want to be black or white with this. You do not want gray. If you can accept that mentality, you have got it. Some might say, “Oh, I have a system.” What he typically means is that he has a system, and it advises him what to do. If he likes the advice, he’ll take it, and if he doesn’t like the advice, he won’t take it. That’s not a system, that’s the same as following the news.

One thought on “Another Week & Another Reason Why Systems Win

  1. My RIX strategy issued a Sell Signal for the NYSE on 4-9-12.  So I am out of the market and I will stay out until the RIX tells me to get back in.  That is a Strategy.

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