Of All My Indicators, This Is Number-One
Volume
declined today as the indices all finished lower. This is a positive
after the accumulation days that we saw at the end of last week. The market is
still squarely stuck in a trading range and movement in individual stocks
continues to be herky-jerky. The recent accumulation also came on the heels of
some blatant distribution. In other words, I don’t think the market knows where
it’s going and neither do I. If you’re a trend trader then patience is key
until a trend more clearly asserts itself. If you’re a reversal trader —
enjoy.
My last column each month
typically focuses on my market outlook. I review all of the indicators I look
at and discuss what I am seeing. I will be doing this again on Wednesday.
Sometimes after this column appears I get questions on the UUWNHI (Unofficial,
Unscientific, Working/Not working Hanna Indicator). In anticipation of this,
and since I haven’t discussed it in a while, I thought I would give an overview
of what I look at and how I use it.
The idea behind the UUWNHI is
simple. My trading involves multiple strategies, both long and short, using
different times frames and methods. Some of these correlate to each other.
Others don’t. The UUWNHI attempts to look at the strategies I employ to see
what is working best for me and what is not working well. This allows me to
focus my energy on those strategies that are recently working well.
One question I sometimes get
is: How far back do I looking when judging the working/not working indicator?
I typically look back over the
course of the last 2-3 weeks for my purposes. This could differ depending on
your trading style. When considering the UUNWHI I weight the recent action more
heavily than those trades that took place 10-15 trading days ago. If you were
to think of the UUNWHI as a moving average, it would be an exponential moving
average, rather than simple. This allows me to make adjustments quicker.
Of all the indicators I use, I
consider the UUWNHI to be my #1. Most of my trading is in individual issues, so
while index performance is a good indicator of strength or weakness in the
market, it doesn’t necessarily correlate to my trading. I don’t always make
money when the indices are up and I don’t always lose money when they’re down.
Therefore, what is more important to me than where the market averages are going
is: “How is the action within the market, and what does that mean for my
trades?†The UUWNHI is my way of measuring just that. I would encourage all
traders to consistently monitor what’s working and not working in their own
trading so that they may better evaluate the markets action as it relates to
their personal strategies.
Good Trading,
Rob Hanna