Once you understand why and how liquidity works (System Liquidity), you’ll understand the importance of the saying “Don’t fight the Fed”. The Fed has the biggest impact on global liquidity, and this liquidity is what drives the prices of assets, primarily equities. When the Fed’s actions are increasing net liquidity in the markets, we see equity prices going up with a lag, and vice versa when net liquidity is going down.
Many investors and traders think that a stock “should be valued at X” for whatever odd reason such as P/E, revenue, profit, growth, economic outlook.. etc. Although these things are one factor to look at when buying or selling stock, do NOT confuse the stock market with the economy. The market is forward looking and LIQUIDITY controls future demand
Granularly tracking this systemic liquidity gives a giant edge on the market and allows us to see the direction the market will be heading in as well as turning points. I would NOT recommend trying to use this form of tracking to come up with a “fair value” for $SPX or any other equity. Instead, we must focus on the direction that liquidity points and at what points liquidity turns.
Here is a historical performance of the ST Liquidity model I have been using to nail the market since I began trading futures in 2022. The data points have been smoothed for an easier to view graph and for the sake of not giving away too much for reverse engineering of my weights and lags that I apply to liquidity sources. If you’ve looked at my publicly alerted trades as well as my trade-log which track my swings, you’re aware of the extremely high success rate I have: Swing Trading Log
This model has allowed me to time turns and directions very well. Of course, this model can’t be blindly followed and will have instances where turning points may be off. Risk management via hedging and proper sizing are key for doing these swing trades.
This is where I provide guidance to members of my service as well as multiple times per week snapshots of the granular version of the above model to show exactly where liquidity predicts the market will be heading in the coming days.
My only wish is that I began tracking liquidity earlier than I did.
Let’s go. Great job 👏
Very cool!
Hi Stanzie, I just joined and appreciate the transparency on your sources and considerations. Could you reassure me on the topic of overfitting and backtesting bias, i.e. which periods have you used for the parameter fit in the above chart? Have you tested robustness by fitting over different periods etc?
Also, now that Liquidity is in everyone’s mouth, can you comment on how you protect your method from alpha decay… Let me know if Discord is the better place to ask these questions… Thanks!
Yes, shoot me a message on discord, and I can provide any details you’d like.