Information – Actionable or Observable

I published this article in 2017 and believe it has even more merit today. Financial and business-related television always tries to relate an up market to good news and a down market to bad news. Some truly believe they are the ones that move the market; that is an amazing amount of ego for a talking head. This is all nonsense, and the good or bad news rarely provides any information you can actually use.

Here is the 2017 article:

Back in the days of printed newspapers, magazines, and newsletters, the acquisition of news and information was easier, or so it seemed. The reason it seemed easier is that you had access to much less information. Today, with the internet, 24-hour financial media, blogs, and every conceivable method of acquisition, the amount of information is overwhelming. Once I realized that only some of the information was actionable, and the rest was merely observable, things became greatly simplified. Hopefully, this article will shed some light on how to separate actionable information from the much larger observable information. As you can see from the Webster definitions below, they initially do not seem that different.

Actionable – able to be used as a basis or reason for doing something or capable of being acted on.

Observable – possible to see or notice or deserving of attention; noteworthy.

However, when real money is at stake, the difference can be significant. Let me give you my definition and then follow up with some scenarios. The world is full of observable information being dispensed as if it were actionable. All the experts, television pundits, talking heads, economists (especially them), most newsletter writers, most blog authors – the vast majority of stuff you hear in regard to the markets – rarely provides actionable information. Actionable means that you, upon seeing it, can make a decision to buy, sell, or do nothing – period.

I’ll start by mentioning Japanese candle patterns, a subject I beat to death in this blog over the years. I have never stated anything other than the fact that Japanese candle patterns should never be used in isolation; you should always use them in concert with other technical tools. Hence, Japanese candle patterns for me, are observable information, not actionable. Only when backed up with other technical tools can they become actionable.

Another example that is often incorrectly thought to be actionable, is economic data. Too often I hear the financial media discussing economic indicators and how they affect the stock market. Initially it seems they forget the stock market is one of the components of the index of LEADING indicators; in other words, the stock market is better at predicting the economy, not the other way around. First of all, economics can never be proved right or wrong since it is an art, just like technical analysis. Economic data is primarily monthly, often quarterly, and occasionally weekly. It gets rebased periodically, often gets adjusted for seasonal affects, and very often the initial numbers are revised dramatically. Revisions are typically ignored by the media since the story is “old” by the time the revision is released. Economic data cannot reliably provide any valuable information to a trader or investor, but boy does it sound really good when someone creates a great story around the data and shows how one time in the past it aligned with a market top or bottom; it is truly difficult to ignore. Ignore you should! 

The beauty of the data generated by the stock market, mainly price data, is that it is an instantaneous view of supply and demand. I have said this a lot on these pages, but it needs to be fully understood. The action of buyers and sellers making decisions and taking action is determined by price, and price alone. The analysis of price at least is a first step to obtaining actionable information. Using technical tools that help you reduce price into information that you can rely upon, is where the actionable part surfaces.

I doubt anyone relies totally upon just one technical tool or indicator; if they try, they probably won’t stick with it for long. I managed a lot of money using a weight of the evidence approach, which means I used a bunch of indicators from price, breadth, and relative strength. Each individual indicator could be classified as observable, but when used in concert with each other, THEY became actionable.

I think the point of this entire article is to alert or remind you that there is a giant amount of information out there and that most of it is not actionable; it is merely observable. Sometimes it is difficult to tell the difference, so just think about putting real money into a trade based upon what you hear or read. Real money helps people separate from making decisions based upon observable information, no matter how convincing it is.

Dance with the Actionable Information,

Greg Morris