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March 30, 2022
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My name’s Alan Knuckman. Several times a week CNBC, Fox News, Bloomberg, etcetera ask me what I think about current market conditions and hot stocks to watch... on the air with millions watching.

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Markets Over Methods
by Jea Yu

A Variant Perspective of the Markets

Trading is simply a matter of trying to profit off of price fluctuations. Sounds pretty simple. A stock price can go up or down. How hard can it be to step in for the ride when it goes up, and sell before it goes down? How tough could it be to short a stock on the way down before it bounces back up? This sounds simple enough. If a stock can only go from point B to point C, or point A, then you just need to enter a position when it starts to make its way. It seems so simple.

Let's add some more factors to this simple phenomenon. We can assume that a stock will eventually go from point B to point C or point A. In between point B and point C, there are ten mini stops in between, and five of those stops branch off towards other points in between. While it would be nice to get a straight move in either direction, in most cases, the stock will take many detours and look to change directions along the way before it eventually arrives at a specific point. In fact, when the stock looks the most likely to arrive at point C, it will often completely reverse back to point A in a panic, or vice versa. This is not to say that sometimes the movement from point B to point C can't be fluid and steady – in fact, that is where you want to be along for the ride. So the question is, how can you distinguish the steady ride from one point to another as opposed to a choppy, rough ride with no real clarity?

The word here is transparency. How does one attain transparency and pick the right moment to take a position in a stock that will fluidly move from one point to another without inducing nausea?

You will need some tools, my friend. Aren't stocks just random trades? How can you measure the buying or selling that comes into a stock? How can you know when John is placing an order to buy stock and Mary is placing an order to sell stock? Isn't it just a guessing game? These are all valid questions, and good starting points to understanding the way the market works.

First things first. John, Mary, and the rest of the neighborhood are insignificant. They don’t make any impact on the market. These "little" guys don’t matter. The "big boys" or "dinosaurs," are the mutual funds, hedge funds, market makers, and institutions. These are the only participants who make a lasting impact in any stock, and they don’t randomly place orders. Remember – dinosaurs don’t walk in the sand without leaving footprints.

Dinosaurs will place their large orders with traders or market makers and have them "work" the order. This means they will scale into or out of positions while trying to minimize market impact. In other words, they are trying to muddle transparency. This can come in the form of all kinds of games. If it were just one or two dinosaurs getting in and out of large positions, that would make transparency more difficult. However, one has to remember that there are numerous dinosaurs all trying to leap frog each other without getting screwed. When the majority of the dinosaurs are herded in the same direction is when the transparency gets clearer. This presents itself in the form of trend and volume. The greater the volume and trend, the more fertile the market is for trading.

The objective of trading is not to predict price action, but to track the footprints of the strongest dinosaur herds and ride their tails like a flea for profits before they shake you off or slaughter you.

When playing stocks, we like to use a lead indicator that dinosaurs tend to follow like the north star. These include the S&P 500 and the Nasdaq 100 futures. When the futures rise, program trading tends to come in to capture premiums multiplied by thousands of participants, which tends to pull equities markets higher – and vice versa when futures fall. The futures impact the leader stocks, which impact the rest of the sector stocks in a totem pole fashion. The strength of the futures flows down from the leaders of the various sectors to the lower tiers. In extremely strong markets, the strength can flow down to the lowliest stocks within the sectors. The dinosaurs will usually play within the framework of the futures by scaling out large sell orders in an orderly manner into rising futures, and vice versa. They want to avoid showing their transparency, so they will usually follow the flow. However, if an order is too large or is urgent, then it will create a divergence against the futures, which tends to stick out like a sore thumb. This type of divergence is called a fade. The fading can tip off other participants of a large seller, which then invites shorts to take advantage of the wounded dinosaur and sell down the stock when the futures slip. It's like the animal kingdom, chock full of carnivores and cannibals. Of course, when a fade becomes too transparent is when it may simply be a bear trap to lure in shorts to squeeze them out by triggering a buying explosion. This too can be foreshadowed and exploited with the right tools.

Be the Cockroach

Dinosaurs aren't the brightest creatures. Like people, some are stupider than others. The main thing to remember is that you can maneuver around these big beasts, so don’t feel too small. Be the cockroach. Cockroaches outlasted the dinosaurs due to their ability to adapt and maneuver. Cockroaches can live a month without food.

If a nuclear war broke out, cockroaches would be the only survivors. They can live for up to three weeks without a head! They prefer warm, humid, protected, and dark environments. This is where they thrive, although they can survive in the desert or the arctic.

Of course cockroaches can get squished easily, if they stray into the wrong environment. We want to avoid this messy outcome, and avoid the decapitation part too! This is why we want to be most acutely aware of the environment.

The market climate will be a big determining factor in your ability to survive and thrive, like a cockroach. In so many cases, a newer trader learning the methods will see them play out beautifully on a Tuesday and fail miserably on Wednesday. What changed? The methods remained the same – it was the market, notably the trading environment. Market trading environments can make a system look like a hero, and then a zero the very next day. Therefore, it's imperative that you can identify when the environment is fertile enough to play and infertile enough to stay out.

 
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6) Some profit examples are based on hypothetical or simulated trading. This means the trades are not actual trades and instead are hypothetical trades based on real market prices at the time the recommendation is disseminated. No actual money is invested, nor are any trades executed. Hypothetical or simulated performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Simulated trading services in general are also designed with the benefit of hindsight, which may not be relevant to actual trading. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. TradeWins makes no representations or warranties that any account will or is likely to achieve profits similar to those shown.

7) No representation is being made that you will achieve profits or the same results as any person providing testimonial. No representation is being made that any person providing a testimonial is likely to continue to experience profitable trading after the date on which the testimonial was provided, and in fact the person providing the testimonial may have experienced losses.

8) The author experiences are not typical. The author is an experienced investor and your results will vary depending on risk tolerance, amount of risk capital utilized, size of trading position and other factors. Certain Subscribers may modify the author methods, or modify or ignore the rules or risk parameters, and any such actions are taken entirely at the Subscriber’s own election and for the Subscriber’s own risk.