Liberating Experience

Not knowing where the market is headed and more importantly not having any expectations about the direction of the market is a very very liberating experience. Not just liberating, it is absolutely essential if you are a system trader. That is precisely why I do not, normally, try and write stories about what the market could do. I broke this rule yesterday when I wrote about the fact that at current Earnings Yield to Govt Bond yield ratio the market is in the midpoint of its range. I also said that for the market to truly bottom out we might need to see this ratio going to around 1.5 which is not likely to happen any time soon given the fact that bond yields have proved remarkably sticky in the recent past. The only way, this could then happen is if indeed the market fell and the earnings yield consequently shot up.

While all this is great as a story, the problem is that the moment I wrote it, I subconsciously have started expecting a fall. I am therefore not ready to react very well in case the market shoots up and my system gives a buy. I will now, for a long time, be troubled by the fact that the fundamentals do not support a sustainable rally and therefore find it difficult to buy when my system suggests it. This reluctance to act, can be disastrous for a system trader like me.

However, writing this note, seems to have helped me. I am short currently but will cut my short positions and go long if 4937 is taken out.