Conceptually Correct Market Principles

Discussion in 'Trading' started by stock_punter, Aug 25, 2001.

  1. Greetings All,

    Laurence Connors wrote in his book "Connors On Advanced Trading Stragies" the importance of stragies based on conceptually correct market principles/characteristics.

    For example, buying the market when the San Francisco Giants win on Monday wouldn't be conceptually correct.

    However, buying the market when the VIX reaches all time lows and then begins to downtick might be considered conceptually correct.

    These market principles aren't just applicable toward the market as a whole, but also to stocks in particular.

    For example, we have the concept of reversion to the mean for volatility. So a stock currently exhibiting low volatility may be expected to show an increase in volatility via a big price movement.

    I'd be interested in hearing what other conceptully correct market principles you believe exists.

    Just to get the ball rolling, here are a few off the top of my head:

    + Reversion to the mean of volatility.

    + Markets trend only 30% of the time, and are trendless 70% of the time.

    + Institutions leave tracks in the price and volume charts.

    + Institutions take time to move in and out of positions, hence small and nimble traders have a edge over institutions on this dimension.

    + Stocks in strong trends tend to have pullbacks before resuming their trend.

    I look forward to hearing your thoughts.

    Happy Trading.

    -- Punter
  2. tradeRX


    Buying when the Giants win is not "conceptually correct" because no casual relationship or connection has been established (factual or theoretical) between the two variables. However, if one PROVED such a relationship, this would be "conceptually correct" would it not?

    Also, I wouldn't call the bullets you posted "principles", this connotes rigor. Something that is well defined, accurate and more rather than less dependable.

    I think what you have posted are aphorisms ...short sayings stating generally ACCEPTED truths. General and vague in nature, and not necessarily valid or reliable.

  3. limbo


    RX--I hate to wake up to this first thing in the am--but why when I read your posts do I always get annoyed, along, it seems, with many others. Is your post really an attempt to move this thread/site forward or to simply discredit Punt- argue semantics and be contentious. Instead of adding to his list of principles/aphorisms-- whatever-- which have come down through the ages-by great guys like my man Art Cashin etc.-we will argue garbage for the next 25 pages. Why? Why be so prissy? I don't get it.
  4. In refering to the VIX, I used it in a different manner. If volatility is high and the market closes positive, expect a break to the up side, with high volatility and a negative close, expect a break to the down side. If volatility is low means not much going on. Any thoughts?
  5. According to Conner's book, volatility is auto-correlated. Expecting continued volatility is reasonable. As for price autocorrelation, I have not heard anything to that effect.

    From what I have read, high VIX has occurred usually during market declines, while a low VIX reading uptrends. The reasoning given being that markets move up in a steady fashion (hence low VIX), while markets move down more sharply and quickly (hench high VIX).

    What I read some traders to do to determine which way a stock will move when in a low volatility case is to look for pattern setups to give a clue as to the likely direction, or to enter the position in the direction of a pre-existing strong trend.

    I suppose the same can be done during periods of high volatility as well.

    -- Punter

  6. tradeRX



    Countless "principles/facts/laws" have "come down thru the ages", but does this attest to their vailidity? I was simply pointing out that you need to be careful what factual weight you give these vague "truths", that's all. Many fall by the wayside under reasonable scrutiny. Many have yet to undergo scrutiny to attest to their accuracy and reliablilty. Let's be careful what we accept and use that is not supported by fact or at the very least a reasonable argument. Misonceptions abound, let's not add unnecessarily to the confusion. Authority figures like Art can be wrong. Let's keep straight what is "proven" and reliable, and what has yet to undergo reasonable scrutiny. I think we should take these aphorisms with a grain of salt.

    I have no idea why you become annoyed when I exercise my posting privileges as everyone else does here. Is it OK with you if I continue to post my points of view?

    I have a great idea...Whomever posts an aphorism or "principle", please provide your supporting evidence in the form of facts, studies, or even a reasoned argument. The rest of us will try to tear it down, play the devil's advocate. Those aphorisms which can withstand these reasoned assaults are deemed to be closer to a principle. I think this will be lots of fun as well as instructive. What do you think? Let's see how well these stand up to our collective scrutiny!


    "Models are fun to invent and to play with, and they have a peculiar life of their own. The "survival of the fittest" applies to models even more than it does to living creatures. They should not, however, be allowed to multiply INDISCRIMINATELY WITHOUT REAL NECESSITY OR PURPOSE."