- Do not turn completely bullish or bearish on the whole market. Look at which sectors are bullish or bearish;
- When you see a move happening in a sector, act upon it immediately, irrespective of the overall market direction. But do not act the same way on other sectors;
- Confine your trading to prominent stocks in prominent sectors. If you cannot make money out of the leading sectors and stocks, you are not going to make money out of the stock market as a whole;
- At any time there are only 3-4 groups leading the market.
One of the most important observation of mine about the market is that even the worst stock in top sector will rally more than the best stock in lagging sector. Sector effect is as powerful as blowout earnings or relative strength.
“If you don’t see anything, you don’t trade. You take risk only when you see an opportunity”
Paul Tudor Jones II
If you don’t have risk management rules, you don’t have a method. You are gambling. Knowing when and what to enter is only one side of the coin. It is necessary, but not sufficient.
“The breaking of a longer-term consolidation (stage one accumulation or stage three distribution) attracts players from multiple timeframes (both shorter term traders and longer-term investors) who attempt to establish new positions near the beginning of a fresh trend. The breaks of consolidation levels from longer-term timeframes tend to lead to sharp and sustained movement due to competition from different timeframe participants for liquidity.
When trend begins to develop on a longer-term (monthly or weekly) timeframe, view it as a signal that there will be numerous trading opportunities in coming weeks, months and even years. Once underway, the fresh trend will create alignment trade opportunities after short-term pullbacks. Entries after these pullbacks typically offer a low-risk way to participate in established trends. The larger the volume on a break of longer consolidation levels, the greater the odds of a new trend being able to sustain the move. Fundamental developments that accompany a break higher or lower also increase the odds of continued directional movement as more participants are attracted to the action.”
an extract from “TA using multiple timeframes”
by Brian Shannon
We have tested every system under the sun and amazingly, we have found one that actually works well. It is a very good system, but for obvious reasons, I can’t tell you much more about it. The basic premise of the system is that market move sharply, when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.”
Paul Tudor Jones II