Forget about trading rules and think more about trading guidelines. So many trading rules get thrown around Twitter, it’s nauseating. Some rules are from the 90’s, some from the 80’s, 20’s, etc. I think in trading you should think more in guidelines than set in stone rules. The outcomes of trades will have you rethink what you do multiple times throughout the year.
The rules are endless; 200-day moving average rule, average down rule, don’t let a winner turn into a loser rule, don’t buy stocks in downtrends, etc.
Your guidelines about trading should be based on the commonalities that drive a stock within your trading timeframe. In other words, if your average holding period is 30 days then find out the commonalities of the best-performing stocks in the last 30 days for the next six months. You will probably realize that it is all about momentum within that time frame. If your holding period is quarters to years, then you will probably come to the realization that earnings, story, growth, etc. matter more.
Today when I did a quick scan of the best-performing stocks in the last 34-days, 80% of them share one market structure commonality. If you do this for the next six months, you’ll notice that this market structure phenomenon happens consistently.
As of today, 51 stocks are up 25% or more in the last month, 78% of them share the same commonality as the above study. It’s a market structure thing.