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Visualizing the S&P

|Includes: SPDR S&P 500 Trust ETF (SPY)

Most market participants look at charts of the markets that exhibit them in a serial fashion.  Daily, weekly, monthly charts are scoured for opportunities to exploit  Visually, it is a significant challenge for one to relate current conditions to prior periods and fully understand the complexity that is and was present.

For example - Here is the S&P 500 from 1970.  With the benefit of hindsight, the large trends stick out quite clearly.

Masked underneath these major moves, should your time frame be shorter, is a far more complex picture.

Take a look at this chart that compiles weekly % performance versus year.  What you see is an undulating surface that looks almost entirely unpredictable.  This is actually what each of us face as traders and what makes it such a challenge.  Picking major tops, bottoms, entries or exits is easy when looking at the past as shown in the typical linear chart above.  The issue is that the volatility shown in the picture below will be pressuring each and every decision - introducing emotion - and thereby mistakes into trades. 

Positive returns

Negative Returns

The picture that unfolds is significant volatility within major trends.  What traders need is a way to separate signals from all of the noise.  That will be the subject of future discussions.

Happy trading.

Disclosure: Disclosure: No position in SPY at time of writing