Market Indicators: The Best-Kept Secret to More Effective Trading and Investing

Part I. Measuring Investor Actions

	As a general rule, the most successful man in life is the man who has the best information.
	--—BENJAMIN DISRAELI

Money doesn't flow—it sloshes. Like water in an overfull bathtub money moves in waves, as investors process information and balance the competing desires to grow wealth and protect capital. Traders use connections and quick thinking to react to new information, deciding how it may (or may not) affect capital returns. Thoughtful investors try to proactively position portfolios, rather than reacting impulsively to each new data point and market development.

As it sloshes, money creates a variety of measurable results, which signal how investors currently view risk and where they are placing bets. This first section reviews a variety of real-time indicators that point to capital allocation and reveal traders' general levels of risk tolerance. Our first stop: the options market.