Seasons of the market
- Posted by DynamicHedge
- on February 11th, 2016
A sunny and bullish trending market showering your portfolio with gains feels incredible. During the market summer, bearish sentiment quickly turns cautiously optimistic and the tape transitions from oversold to overbought — and stays overbought for weeks. These moves happen despite the fact that most people still remember the winter so vividly. It’s confounding and magical at the same time.
Winter is tougher. Destructive storms flare up in a snap. When the destruction doesn’t seem to be able to get any worse the clouds break, and the sun pours in the form of a vicious relief rally. A breath of air. A false hope that the worst is behind you. It’s frustrating to live thru and even more — it’s frustratingly obvious in hindsight. After all, in the present moment, most people are surprisingly optimistic that each breach of support is just a minor setback.
When the seasons of the market change, you notice. You don’t have to look in your databases for negative signals or find some obscure data point. The market lets you know in the most distinct ways. You only need to be open to the messages. The most obvious being price action, as risk runs in unison.
It’s impossible to know when winter will break. Even in our efficient, connected and information saturated world, seasons are still an absolute necessity. These things still take time no matter how much you know. In fact, the most conscious lesson I’ve had to force myself to learn in this new era of social media is that broad recognition of reality often isn’t enough to change the course of the herd.
The weather is cold now. There’s nothing that tells me this will be an unusually harsh or brutal winter. It will turn eventually. It’s only a season, don’t let it break you.
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DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More
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