The market is never 100% bullish or 100% bearish. There will always be some bullish factors and some bearish factors. Here’s what you should do when market signals conflict with each other. Remember that trading and investing is all about probability. There is no such thing as a “sure thing”.

Some signals will override other signals

Inexperienced traders will tally up the number of bullish factors and count that against the number of bearish factors.

  • The trader will be bullish and go long when there are more bullish factors than bearish factors.
  • The trader will be bearish and go short when there are more bearish factors than bullish factors.
  • This is not the proper way to trade when different market signals conflict with each other. This strategy implies that all market factors are equally important. This isn’t true. Different market factors should be weighted differently.

    You should always rank the factors that you consider from most important to least important. For example, let’s assume that you consider 10 factors when trading or investing. You must rank these factors from Most Important to Least Important.

    Factors that are more long-term tend to be more important than factors that are more short term. For example, weekly RSI (momentum indicator) is more important than hourly RSI. Fundamentals are more important than short-term technical indicators because fundamental indicators impact the market’s long-term direction.

    Short-term factors can easily be overwhelmed by short-term market forces. For example, let’s assume that the long-term factors are bullish but the short term factors are bearish. The market might not make a pullback at all if the market’s “buy the dip” mentality is strong enough right now!

    What happens when it’s not clear whether there are more bullish factors or bearish factors? What if your list of signals looks like this?

  • Signal #1: bullish
  • Signal #2: bearish
  • Signal #3: bullish
  • Signal #4: bearish
  • Signal #5: bearish
  • Signal #6: bullish
  • Signal #7: bullish
  • Signal #8: bearish
  • Signal #9: bullish
  • Signal #10: bearish
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