Pay Attention to the Big Picture

Tip 4: Pay Attention to the Big Picture

For best results, look for tickers that you expect to move in the same direction as the sector they’re in and the overall market.

Sectors with the highest OTM % and overwhelmingly bullish or bearish premium flow are where Wall Street expects the most considerable price movements with the most “consensus.”

Combined, these two graphs help you avoid trading “against the current.”

All ships rise with the tide, so it can be easier to trade a bullish position in a sector with almost all bullish flow.

Let’s look at an example to illustrate. The graph below shows that the technology sector has mixed sentiment, the energy sector has bearish sentiment, and all other sectors have bullish sentiment.

Based on the sector sentiment, we’d avoid technology and energy tickers to increase our chances of success.

The same concept applies to the overall market sentiment. You’ll have the best chance of success trading in the same direction as the overall market, not against it.

ETF flow is beneficial to understanding market sentiment. However, most of the put flow that comes from SPY, IWM, QQQ, and others is probably a hedge, even high dollar ones, so ETF sentiment is only meaningful when it's clearly bullish or bearish.