I don’t know if there is such a thing as a normal market environment anymore. I’ve been trading for over 20 years now. Looking back over that time period, it’s hard to find a point when things fit into the category of normal. In the late 90s, the market was stuck on turbo. Call me crazy, but when a major market index like the Nasdaq doubles over the course of a year, I wouldn’t call it normal market behavior. In the early 2000s, the Blue Chip indexes were lopped in half in less than three years; the bleeding on the Nasdaq didn’t stop until it was ¼ of its bull market high. Again, that’s not normal. What about the advance off the 2003 low? This might be the closest thing to normal that’s occurred in decades. It took the market about four years to double in value, but even that move was unique because it was such a persistent move. Then came the financial crisis from late 2007 to early 2009. That was anything but normal. The market declined like it was wearing cement shoes – a bigger, sharper move than anyone had seen before. And then there’s the current move, a bull market that has been in play for more than five years and is proving to be one of the most one-sided markets we’ve ever seen.

The lack of a “normal” market environment is far from a bad thing. The quicker the market moves, the easier it is to get in the way of big trends and make a lot of money. The problem you may run into is if you try to apply normal market parameters to this perpetually non-normal market. Think of the vast number of market indicators that are built to reflect the market’s “normal” tendency to revert to the mean. Every oscillator ever built (such as Stochastic and RSI) was designed to reflect some period where the market is oversold or overbought and therefore most head back to normal territory.

Any type of Bollinger band or moving average envelope shows when the market has strayed too far from the middle. The VIX is built on the notion that the market can become too fearful or too complacent, and therefore is due to head the other direction. To say that these indicators are unreliable during non-normal market periods is putting it nicely. Many of the traders I talk to that followed trading systems based off such indicators wish they would have just blocked out the noise and stayed put. Of course, maybe things will change and the market will return to “normal”. But whether it does or not, I know the one indicator that’s always reliable. It’s price. It should be pretty obvious to say that the only thing that impacts the success of a trade is what price does. But why then do so many traders try to create some abstract representation of price to guide their trades instead of looking directly at the only thing that matters?

There is no grand secret that can be uncovered by adding one more indicator or by creating some complex algorithm. It’s just more noise that can get in the way of trusting what is super apparent right there on the price chart. Get rid of the noise, and it becomes a lot easier to ride a trend while staying out of your own way. More is not better. A complex trading system that has 10 moving parts pretty much defines the term “paralysis by analysis”. If you want a trading system that stands the test of time, the best advice I have is to avoid complexity, keep it simple, and to focus the system on the one indicator that tells you the truth regardless of the current market environment.