Okay ... Let me try.
Most commonly I use a tactic based on "market-breadth". To demonstrate, I'll go point by point.
- It surely is possible for one stock to go consistently up or consistently down for an extended period. (And extended is quite sibjective.)
- It surely is possible for two/three/four/... hightly co-related stocks to exibit similar up/down behavior for identical time-frame. (e.g. Cisco, Juniper Networks, Extreme Networks ... Wells Fargo, Chase, Bank of America ... BP, Shell, Exxon.)
- Now, how possible it is for a mix of stocks that are loosely co-related to go up or consistently down for an identical extended period? Say fifty stocks (Euro Stoxx 50) or hundred stocks (Nasdaq 100) or five-hundred stock (S&P 500) or two-thousand stocks (Russell 2000)? Perhaps your guess will be that surely it is possible for all of them on an average, to move go consistently up or consistently down for relatively shorter periods only. Reasonablly quickly they will diverge, and an inevitable "regression to mean" will occur for them collectively.
That's it !!! The movements of large number of stocks to an untrained eye
could look like "random" movements, but there are patterns there. (No no ... I do not claim to have deciphered them all ... But at times these patterns, these time-frames are clear to me, and when they are, they are actionable mostly resulting in profit.)
BTW, I too don't invest. I simply trade.
In the thread about the PM/Miners
, I posted about buying. Each of such buys has a stop-loss
. If I'm wrong, and the security moves that is resulting in a loss then the stop-loss will be executed at the level that is "tolerable" to me, rather than a level that will be "wipe-out". If I'm right and the security moves so that it is in profit, then I'll trail a stop order behind it that will assure me some profit. If I see a better opportunity, mostly I'll close the position and move on. If the security is neither moving up or down in a satisfactory manner, and it is getting boring to see it hover, then also I'll close the position and move on.
Another tactic is to do short-term hedges based on the open Structured Notes. (I will not be able to document that today. Maybe some other time.)
Trading in tax-defereed accounts spares me from immediate taxes, and these days commission is very cheap (and even zero for several ETFs at Schwab, Fidelity, Ameritrade etc.)