Why does the same strategy stop working?

The index is not the market

The S&P can grind sideways while most individual stocks are quietly falling apart, and it can look ugly while participation is broadening underneath. Breadth measures what the average stock is doing instead of what the cap-weighted index is doing, and the two disagree often enough that trading the index read alone will regularly put you on the wrong side of your own setups.

What breadth actually counts

Two numbers carry most of the signal. The first is the daily 4% test: how many stocks moved up more than 4 percent today versus how many fell more than 4 percent. Strong days show hundreds of stocks moving up together, and the ratio of up days to down days over the last 5 and 10 sessions smooths that into a trend. The second is T2108, the percentage of stocks trading above their own 40-day average, which tells you how much of the market is participating rather than how far the index travelled. Our Market Monitor runs on the Stockbee Market Monitor breadth data published by Pradeep Bonde, with history from 2014. We are not affiliated with Stockbee.

The tape has a handful of states, and they behave differently

Those numbers resolve into a small set of named regimes: strong uptrend, uptrend, mixed tape, pullback, correction, bear market, and recovery. The labels matter less than what they imply. A strong uptrend is broad participation, where breakouts tend to follow through. A mixed tape is price and breadth disagreeing, which historically has gone roughly nowhere on average, and is where overtrading does the most damage. A correction is where dip-buying rules keep firing and keep failing, because the dips stop being dips.

Check the weather before you size, not after

This is a cheap habit with an outsized payoff. Before taking a setup, look at what state the market is in and how many days it has been there, then decide your size accordingly, or decide to sit out. You are not predicting anything. You are refusing to run a strategy in the conditions where it has historically struggled, which is a different and far more achievable skill than calling tops.

How to use this

• Check the regime before the chart. It costs seconds and it changes how much size a setup deserves.
• When price and breadth disagree, treat it as a reason to do less, not a puzzle to solve with a bigger position.
• Match the setup to the state. Dip buying wants an uptrend, breakouts want broad participation, and neither wants a correction.
• Note the regime alongside your trades. Over a few months it will show you which conditions you personally trade well.
• Do not use breadth to predict turns. Use it to describe the present, which is all it claims to do.

Common questions