Quantcast

Forget ‘Sell in May and Go Away’ – Here’s How We’re Crushing the Markets

Posted On May 10, 2018 2:36 pm
By:

How to Beat the Markets, Strategy No. 2: Use Probability Cones

This is a wonky statistical thing that gives us an idea of how big the next move can be. It looks at the recent trading history of the market, or a stock, and adds implied volatility. The result is a cone shaped area of probability for where the market can move next. It could be higher or lower, but we’ll get an idea of how far it is capable of going.

Think of it as one of those cones of uncertainty the meteorologists like to show us when they talk about the path of a hurricane. Instead of where the storm can hit, stock market cones tells us how far from the current price the market can move.

Do you see what we have so far? We’ve got trigger points to tell us to buy or to sell. And now we have an idea of how far the market can move once we get the trigger.

But there is one more factor to consider.

How to Beat the Markets, Strategy No. 3: Assess the Overall History

While it’s true that May is sometimes not strong, that doesn’t mean we can’t profit. But with higher volatility and only two strong days so far in May 2018, the market is telling us to be a little more conservative.
That means trade a little bit smaller. It means to be sure to set your stops. And it means that you should not try to milk every drop from a trade.

Now we know how to spot the buy or sell trigger, how far the market can potentially go, and that May’s condition tells us to be more conservative. It’s a three-part plan for success in any market.

By looking at stock market charts, you can learn to anticipate what may come your way. Just because it’s May doesn’t mean you need to take a break from the markets. In fact, it’s quite the opposite.

The key is to keep learning.

Don’t get overwhelmed by any “May market blues” – stick to your strategy, trust your plan, and use the education you have in place to help you make the best decision for your portfolio.

*This has been a guest post by Money Morning*

 Related: Is a Black Swan Event Awaiting the Market? 

About author