Rally and the Noise

Its normally tough to make money in markets but when you add noise, its very easy to lose focus and forget the signal that is pointing the other way round. As a trader / investor, we are generally biased one way or the other. We read / analyze and tend to form a opinion based on the facts at hand. While we believe we are objective, it really is something we ourselves deep inside will have a tough time believing. 

What is worse than having a bias, is having a bias but not accepting the same. I follow several commentators who write / tweet on markets and its always amazing how while claiming to be unbiased in terms of where the market can go from here, always have a very strong opinion on what markets shall do. 

Markets in the last couple of months have made a run up of 14% since we made a low in Feb. While I myself was not sure if this rally had legs in the Initial stage, once we started taking out major resistances and then broke the all time high, there was not much of a question as to where the trend is. Of course, since I trade based on a trend-following system, my view in itself has little relation to what I do, but having a strong opposite view can play havoc with the mind making it tough to take positions as and when dictated by the system.

One of the guys I follow on twitter has been bearish (though doesn’t admit it) for quite some time and just as a time pass activity decided to analyze his tweets since the low of Feb. While I could not find one tweet which said “Buy Nifty” (only once was a Call Option asked to be purchased on Dollar Cost Averaging though it was asked to be quickly discarded once the average price was reached), here is a chart with the main tweets appended on it.

Image

The only way Noise can affect your trading is if you do not have a well tested & fully automated (in terms of Buy / Sell decision signals) system since its always tough to go against the grain (read herd). 

To close, a quote from @ReformedBroker “Be on financial Twitter to become a better investor, not because you think the guy tweeting stocks at you has a clue”

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About Prashanth

Have been a full time participant in the stock markets since 1996. Run a Yahoo Group where focus is exclusively on discussions of the Indian Markets using Technical Analysis as the tool (groups.yahoo.com/group/technical-investor)
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