“Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface.” -Nassim Taleb, The Black Swan Of Cairo
My analysis of price action has evolved over the past year. I no longer use trend lines. I no longer use MACD, RSI, stochastics, all those traditional tools that I believe fail to measure the most important aspect of a market. And that is stress. And as Nassim Taleb so eloquently states and I reword “the suppression of volatility, creates volatility.”
And yet during the often prolonged period of suppression all seems just fine. Price moves with relative ease. Nothing can stop it’s upward trajectory. Yet beneath the surface a far different picture is shown.