How do market response? when people get stress.

Discussions about the psychology of the markets and the masses as it relates to trading.
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oem7110
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How do market response? when people get stress.

Post by oem7110 » Thu Nov 29, 2012 10:29 pm

When people get stress on market, and cannot make any complicated decision, will VIX reflect this situation? and how does market move responing to this behaviors? going UP or DOWN?

Does anyone have any suggestions?
Thanks in advance for any suggestions

Toosday
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Post by Toosday » Fri Nov 30, 2012 11:32 am

IMHO, The biggest thing I look for is when markets are extra sensitive to seemingly meaningless news. To me, the process looks something like:

Below "I" refers to any speculator or investor: I am unsure of what the effect large systemic imbalances will have long term therefore I become overly reactive to any sort of news.

Take the fiscal cliff. Regardless of the outcome, the US govt's financial situation will not be significantly impacted. If the market drops it is due to the realization that there are severe structural problems with the economy (mostly related to money printing). If the market rallies then it is due to the money printing's inflationary effects finally coming to light. IMHO, both of these outcomes is only minimally effected by what happens with the fiscal cliff. It is kind of like an enzyme in a biological system. Enzymes do not impact the overall energy released from a reaction, they just provide the initiation energy for the reaction.

oem7110
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Post by oem7110 » Fri Nov 30, 2012 5:04 pm

Toosday wrote: ... when markets are extra sensitive to seemingly meaningless news ...
Can I say that this situation will be reflected on VIX? which will be higher, when markets are extra sensitive.

Thanks you very much for any suggestions

Toosday
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Post by Toosday » Fri Nov 30, 2012 7:08 pm

I personally think using the VIX as an indicator is extremely difficult. I find it to be reactionary not predictive. That is not to say you can't trade VIX, I just do not think it correlates to future movements very well.

stamo
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Post by stamo » Sat Dec 01, 2012 9:57 am

Toosday wrote:I find it to be reactionary not predictive.
Amen.

oem7110
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Post by oem7110 » Sat Dec 01, 2012 11:51 am

When markets are extra sensitive, in general, will market tend to go UP or DOWN based on your experience?

Does anyone have any suggestions?
Thanks everyone very much for any suggestions

stamo
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Post by stamo » Sat Dec 01, 2012 12:04 pm

I think Ned Davis has it right: “The market will usually do what it needs to do to prove a crowd extreme wrong.â€

oem7110
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Post by oem7110 » Sat Dec 01, 2012 10:40 pm

... when markets are extra sensitive to seemingly meaningless news ...

What do people usually do most?

Enter positions ? or Exit positions ?
Does anyone have any suggestions based on your experience?

Thanks in advance for any suggestions

Moto moto
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Post by Moto moto » Sun Dec 02, 2012 4:10 pm

oem7110 wrote:... when markets are extra sensitive to seemingly meaningless news ...

What do people usually do most?

Enter positions ? or Exit positions ?
Does anyone have any suggestions based on your experience?

Thanks in advance for any suggestions
if you are systematic etc----seemingly meaningless news does not factor.
if you are discretionary - then either there is no such thing as meaningless news - only news the market is reacting to.
OR,
you forgot the other alternative - if the market reacts to seemingly meaningless news, you can choose to do something else - NOTHING......
Sit out and wait until the market reacts to seemingly meaningful news.

Toosday
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Post by Toosday » Mon Dec 03, 2012 11:49 am

I was reading VIc Sperandeo's interview in New Market Wizards and he talks about trading the 1984 or 1986 tax deals and getting crushed. He feels you should wait for the market to confirm a direction and not try to go off of what the politicians are saying. I have taken that tact with the fiscal cliff.

oem7110
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Post by oem7110 » Mon Dec 03, 2012 7:46 pm

Will it be the Market Psychology?

... when markets are extra sensitive to seemingly meaningless news ...

What do people usually do most?

Buy at high level - Enter Long Positions ?
Sell at low level - Exit Long Positions ?

Does anyone have any suggestions on this assumption?

Thanks in advance for any suggestions

rhc
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Post by rhc » Tue Dec 04, 2012 1:54 am

oem7110 wrote:What do people usually do most?
from http://dictionary.reference.com/browse/plan

***********************************************************************
'Plan' - noun
1. a scheme or method of acting, doing, proceeding, making, etc., developed in advance
***********************************************************************

I would imagine that most people would follow their plan

danZman
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Post by danZman » Tue Dec 04, 2012 2:48 am

When you say market, I'm guessing you mean equities.

Equities are mean reverting, so mean reversion strategies work great...especially after they fail. Such as right after 1987 crash.

One strategy might be:

1) Wait for equity event that can not be explained by random
walk. 1987 futures crash was one in 10^160 power by the way
for random walk to be true.

2) Trade long and short mean reversion after said event.

VIX trading does work. A quick experiment looking at anomalies
will show a profitable equity curve. For example, it's weird when
both the VIX and SPX rise. Especially on a Friday.

Of great interest to me is that the VIX can be modeled somewhat
close...not by looking at ATR, but by how far the S&P 500 has
fallen in the past month. Traders hedge more as the equity market
falls.

D

rajivm
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Post by rajivm » Tue Dec 04, 2012 4:53 am

oem7110 wrote:Will it be the Market Psychology?

... when markets are extra sensitive to seemingly meaningless news ...

What do people usually do most?

Buy at high level - Enter Long Positions ?
Sell at low level - Exit Long Positions ?

Does anyone have any suggestions on this assumption?

Thanks in advance for any suggestions
What you say - Tredfollowers do that
Mean reversion traders do opposite..so it depends what camp you are in.

sinkpretend
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Re: How do market response? when people get stress.

Post by sinkpretend » Tue Jul 07, 2015 11:55 am

This is not just a market psychology but human tendency, If a event bothers a single person ripples are communicated to groups and waves traverse through societies. In 1929 the great stock market crash is the best example we can take. A single tragedy made more people restless and by 1932 multiple businesses and Banks were declined. Market responds to the flow that is created by its audience.

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