Some stocks move smoothly. Others gap frequently.
What this means to me:
Price action for different stocks shows different characteristics of movement.
What this belief gets me into:
Noticing the frequency and size of gaps in price movement.
Developing ways to measure and track changes in the characteristics of stock price moves.
Measuring and tracking opening gaps.
Developing trading systems that take advantage of stocks that gap.
Developing trading systems that take advantage of stocks that move smoothly.
Developing trading systems that avoid stocks that gap.
Developing trading systems that avoid stocks that move smoothly.
Believing that stock selection can impact trade returns.
Considering a belief that gaps are areas of support or resistance.
Considering a belief that gaps tend to get filled.
How does movement style relate to trend and/or volatility?
What this belief gets me out of:
Trades skipped or missed if a stock doesn’t meet the gap or smoothness qualification.
Observing that a stock that gaps frequently can keep me out of stocks that might blow past my stop.
Choosing to trade smooth stocks would keep me out of stocks that gap.
Choosing to trade gaps would keep me out of stocks that move smoothly.
All stocks move in the same way.
Limitations of this belief:
How does this belief get measured? Are those measurements accurate? How sensitive is a trading system to this belief?
Utility of this belief:
This belief provides a snapshot of how prices move and can be useful in developing both trade ideas and market selection criteria for a trading system. It urges me to be more observant of the market and develop nuances to my trading systems that could be very useful.
While broad in scope, this observation about price movement will allow me to generate more refined ideas about how to trade. I expect other beliefs to flow from this foundation.