Back in the days of printed newspapers, magazines, and newsletters the acquisition of news and information was easier, or so it seemed. The reason it seemed easier is that there was much less of it. Today, with the internet, 24-hour financial media, blogs, and every conceivable method of acquisition, information is overwhelming. Once I realized that some information was actionable and most of the rest was categorized as observable, then things became greatly simplified. Hopefully this article will shed some light on how to separate actionable information from the much larger observable information. As you can see from the Webster definitions below they initially do not seem that different.
Actionable - able to be used as a basis or reason for doing something or capable of being acted on.
Observable - possible to see or notice or deserving of attention; noteworthy.
However, when real money gets involved the difference can be significant. Let me give you my definition and then follow up with some scenarios. The world is full of observable information being dispensed as if it is actionable. All the experts, television pundits, talking heads, economists (especially them), most newsletter writers, most blog authors, in fact most of the stuff you hear in regard to the markets is rarely actionable. Actionable means that you, upon seeing it, can make a decision to buy, sell, or do nothing – period.
I'll start by mentioning Japanese candle patterns, a subject I beat to death in this blog over the past few months. I have never stated anything other than the fact that Japanese candle patterns should never be used in isolation; you should always use them in concert with other technical tools. Hence, Japanese candle patterns for me are observable information; not actionable. Only when backed up by Western technical tools can they become actionable. I demonstrated with in my article Candlestick Analysis – Putting It All Together.
Too often I hear the financial media discussing economic indicators and how they affect the stock market. Initially it seems they forget the stock market is one of the components of the index of LEADING indicators; in other words, the stock market is better at predicting the economy. First of all, economics can never be proved right or wrong since it is an art, just like technical analysis. Economic data is primarily monthly, often quarterly, and occasionally weekly. It gets rebased periodically and often gets adjusted for seasonal affects and everything else you can think of. It just cannot reliably provide any valuable information to a trader or investor. However, boy does it sound really good when someone creates a great story around it and how at one time in the past it occurred at a market top; it is truly difficult to ignore. Ignore you should! The beauty of the data generated by the stock market, mainly price, is that it is an instantaneous view of supply and demand. I have said this a lot on these pages, but it needs to be fully understood. The action of buyers and sellers making decisions and taking action is determined by price, and price alone. The analysis of price at least is a first step to obtaining actionable information. Using technical tools that help you reduce price into information that you can rely upon is where the actionable part surfaces.
I also seriously doubt anyone relies totally upon one technical tool or indicator. If they do, then probably not for long. I managed a lot of money using a weight of the evidence approach which means I used a bunch of indicators from price, breadth, and relative strength (called it PBR – see graphic). Each individual indicator could be classified as observable, but when used in concert with others, THEY became actionable.
I think the point of this entire article is to alert or remind you that there is a giant amount of information out there and that most of it is not actionable; it is only observable. Sometimes it is difficult to tell the difference so just think about putting real money into a trade based upon what you hear or read. Real money separates a lot of people from making decisions based upon observable information, no matter how convincing it is.
I am really looking forward to speaking at ChartCon 2016. The schedule shows me on at 10:30am PT where I'll talk about the marketing of Wall Street disguised as research and show a couple of things about Technical Analysis that annoy me.
Dance with the Actionable Information,