The One Thing To Look For In Any Market

Here's an insightful post from Mike Bellafiore of SMB, summarizing a savvy trader's perspective on what you need to know to be a successful trader. The key point is that the actions of market participants speak loudest. When you can read the flows of buying and selling, what people say about their positions or views becomes irrelevant.

This was especially relevant to Friday's trade in stocks, which gave us a multi standard deviation move on much higher than usual volume. Selling pressure, as measured by upticks/downticks was continuous through the day, suggesting that those additional market participants were executing one way dominantly.

If you came into the day lulled by recent (low) volatility or locked into pre-existing views about the market, you were unlikely to have been able to pounce on the unique flows going through Friday's trade. As the savvy trader in Mike's post pointed out, you didn't need to know anything else.

Friday's trade was a great reminder that the time series of price changes in markets are not always stationary. The distribution of those changes can change significantly from one time period to another. This means that a different process is generating that series; something has materially changed in markets. The one thing you want to look for as a trader is whether the market you're seeing today is similar to the market of the past X days (i.e., stationary with respect to), or whether it's radically different. It's those radically different occasions that can give us trend days, as many will be caught offsides.

Markets can change quickly. That is why adaptability is a cardinal trading virtue.

Further Reading: Three Things to Look For in Any Market
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