Anomaly – /əˈnɒm(ə)li/ – noun, plural anomalies
1. a deviation from the common rule, type, arrangement, or form.
2. an odd, peculiar, or strange condition, situation, quality, etc.
3. an incongruity or inconsistency.
Synonyms: abnormality, exception, peculiarity.
Anomalies are everywhere; little breaks in the cycle of life that make you stand back, scratch your head and mumble ‘what the heck?!’ before carrying on with your day. They are an exception to a rule, they are the strange occurrences, they are an irregular regular part of life. In the stock market, they show up in countless ways: sudden dips and jumps, patterns that stick around impossibly long, companies that defy the odds year after year.
These events don’t make sense. They shouldn’t happen, but they do.
Anomalies in the market are fine. Half of the time the anomalies fall in our favour. The other 50%, they don’t. As those odds are equal there really isn’t any need to worry about the anomalies that happen infrequently and without warning. The problem comes when you try to get involved.
Momentum
Take momentum for example. When traders talk about momentum – “this still has room to run”, “it’s all downhill from here” – they’re falling prey to one of the most basic, almost childish assumptions: what’s been happening will keep happening. That’s all it is: monkey see, monkey do. But, as predictable as it is, this anomaly persists because stock prices are set by – you guessed it – monkeys traders. And, if enough traders join in, you end up with momentum, which can build and build until it suddenly, disastrously turns. As soon as you get emotional and start reacting to an anomaly, it’s already too late.
At fractalerts we can’t predict them, but we don’t allow emotion to alter our trading system. Given time the anomalies will right themselves, and we have the sense to sit back and allow that time to pass.
The big picture
We use huge sums of historical data (anomalies and all) to realise the patterns in the markets. Once our systems alert us to a pattern, we send out an email telling you at what time and when we intend to place a trade. You are free to take our lead, follow the exact same trading strategy that we use or just ignore us. Because at fractalerts, and here’s a pretty big anomaly, unlike other companies we place the exact same trade that we alert our clients to.
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