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Do Not Try to Outsmart Your Signals – The Key to Trading

Aug 11, 2022

Discipline is the most essential quality in a successful trader in order to succeed consistently and in order to take emotions out of trading, developing signals that you will adhere to is vital. I have a long-track record of success in the markets and I can 100% tell you my performance would be even better if I was steadfast to sticking to these signals and not venturing away from them when I get an idea in my head. Every single time I have thought to myself “maybe the signal is wrong this time” and tried to trade the other side of it, I regretted it. There has never been a period in markets where we are tempted to be undisciplined with all the social media trading accounts and media coverage making it even more difficult. I still find myself trying to outsmart the signals once in a while but at least I always make sure to keep a very tight leash on the trade, but really should just not trade at all. I’ve always been extremely disciplined as a person, it started with playing football and then owning a business working from home having to put in the hours every single day and never slack off.

It has been an excellent trading year in 2022 if you followed our core signals whether that was going to cash when the signals were in bear mode, or even better, playing the market short. We have seen an explosion in memberships the last few weeks as people are recognizing our great work having positioned for the market to rally since late June after being bearish to start the year and through most of Q1 and Q2.

Every single year we publish our OptionsHawk Annual Outlook that details each of our core signals in depth and I will go back over them quickly here to show just how well they consistently work. We recently added a “Market Health” section to our Market Blitz daily morning report that keeps track of these signals actively to ensure we catch any changes.

Hopefully by giving these away they do not stop working…

  1. NYSI and NASI – The summation indicators have been essential to timing market inflection points and although they will not always sell the exact top or buy the exact bottom, the signal catches the meat of all the moves. Our method utilized 8-EMA crosses to generate signals though often I like to combine it for a stronger signal with the SPY also closing/crossing above the 8-EMA. As you can see below this signal generated a major sell signal in November 2021 and also caught some of the upward moves while also timely sell signals in January and April, while more recently the late June buy signal caught this massive rally.

2) NYSE Cumulative A/D – This is another great breadth signal and tends to confirm moves more than have perfect timing. With this indicator our method looks for 89-EMA (89 is a Fibonacci number) crosses. This signal gave us a buy in May 2021, a sell in November 2021, and recently a buy in July 2022, talk about catching big trend moves!

3) Weekly MACD Histogram Cross – I covered this in depth in a prior post in just how well it works for individual stocks which tend to give you earlier signals than the Indices but it also works for the market. I use a 13,34,8 combo and essentially when the histogram is positive (green) you want to be long, when it is red you can be short or exit and be neutral. This triggered to the bull zone in the last week of July after going bearish in September 2021 with some brief moves to positive thereafter but remained bear-mode late November through mid-July.

4) Moving Average Crossovers – The 8/21 is our favorite for catching earlier moves, the daily if you have a shorter time-frame, the weekly for longer-term positioning in names. I have covered this many times and the bearish 8/21 weekly crosses got you either out of longs, or short a bunch of Tech names, and others, that then collapsed in early 2022. In the current market the 8/21 weekly has not yet confirmed though the 8 is rapidly approaching the 21 and worth watching, while the 8/21 daily triggered on 7/7 and has remained in bull mode, not bad. This same method is key to applying to individual stocks, I can not stress that enough.

Sentiment indicators can also be useful but more-so for short-term market bottoms with NAAIM a favorite, 55-MA of the CBOE Equity Put/Call, VIX:VXV ratio and NYMO for judging extremes.

There are some other breadth indicators we also pay attention to like New High / New Low, Advance/Decline Volume Index, TRIN and others but the core four above will keep you on the right side of the market nearly 100% of the time.