Alpha Trading: Beating Markets in Bullish & Bearish
When the stock market is on sale people shy away from shopping.
Traders are avidly fighting with greed and fear. Handsome profit would lead greed at the top and unimaginable losses consistently would lead to fear.
How do we overcome the fear and greed?
Is fear or greed good or bad?
Which is better Fear or Greed?
What are Alpha Stocks?
As the stock prices go up consistently confidence looms, more traders get into the play, more bullish they become and more greed limits our cognition rather decision-making ability. Now just the opposite happen when the markets are on continuously bearish, market keeps falling down and this results in fear this again limits your decision taking skills.
You cannot downplay the emotion which might act against you. This is what let me to the title of the post. Alpha is beating the returns of the index by managing greed and fear. The easiest thing is to do is replicate the index by buying the ETF. But we are here to beat the alpha returns by taking a positional stock trade. So then how do you tackle the greed and fear?
Be Fearful when others are Greedy and Greedy when others are fearful. The problem, is not the greed and fear, perhaps the knowledge to tackle the same. We are inspired by the Cockroach Theory- A beautiful speech by Sundar Pichai. How to tackle greed and fear is more important then try to overcome it.
Now the solution to this simple problem is a statistical tool called volatility indicator. People have misunderstood this tool and use it in a wrong way. This tool does not indicate buy and sell signal. It signifies fear and greed. It is popularly also known as VIX. The volatility index detailed explanation would be done in another article since it is a big concept in itself. Briefly, when Vix is high it signifies high fear is prevailing across the market. At the same time, low vix signifies high greed. The best part is this is a free statistical tool easily available.
Below mentioned details, you would find it interesting if you are interested in getting deep into Vix.
Suppression of Greed and Fear would act against you. It is important that Greed and Fear is managed appropriately. The right way to manage is to Be Fearful when others are Greedy and Greedy when others are fearful. Free tool to this is Volatility Index.