August 2012
Beginner
280 pages
7h 11m
English
book
Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades
by Stephen Morris
Content preview from Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades
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MARKET SEASONS
The market has distinctive seasons when stocks behave differently, requiring alternative trading techniques. In Figure 7.1, we see a method by which these market seasons can be differentiated. Martin Pring, who developed a model of different seasons for prices, first introduced this concept. In this version, the main determining factor for any given season is the MACD indicator—specifically, the position of the lines relative to the centerline on a weekly chart of the S&P 500 Index.
FIGURE 7.1 Market seasons.
The position of the MACD lines relative to the centerline determines market seasons.
Each respective market cycle has a direct effect on stock prices. For example, in spring and summer, when a new bull market is born and momentum is building, the market is trending up. This is the market season when long trades perform best, with entries off bottoms or on bounces off support. Swing and position trading is effective at this time, as holding periods tend to lengthen before rallies tire out. Conversely, in fall and winter, when the market momentum has topped and a correction or bear market ensues, shorting is the more effective mode of trading, especially when entries are from interim tops or when feeble rallies fade and smack resistance. The transition zones, in which one season gives way to the next, present the most challenging trading situations. This is when ...
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