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
How do market response? when people get stress.
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.
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.
-
Moto moto
- Roundtable Knight
- Posts: 427
- Joined: Mon Jun 01, 2009 4:12 am
- Location: once again in the UK
if you are systematic etc----seemingly meaningless news does not factor.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 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.
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.
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
... 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
from http://dictionary.reference.com/browse/planoem7110 wrote:What do people usually do most?
***********************************************************************
'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
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
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
What you say - Tredfollowers do thatoem7110 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
Mean reversion traders do opposite..so it depends what camp you are in.
-
sinkpretend
- Full Member
- Posts: 21
- Joined: Fri May 08, 2015 8:40 am
Re: How do market response? when people get stress.
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.