Most traders spend 90% of their time searching for stocks. Better screening, better setup, better entry point. These are certainly very important, but the priority is to define the overall market environment. Because roughly three-quarters of stocks move with the general market. This means that the biggest leverage on your profit and loss is not your stock selection, but correctly reading the market environment you are in. If the environment is risk-on, you increase your position. If it's risk-off, you cut and wait. When you get this reading right, all other decisions become easier. Find the best setup in the world, make the perfect entry. If the market is in a downtrend, that stock will most likely fall as well. Conversely, even a mediocre setup will work in a strong bull market. As a trader, your skill is determined by the environment, not you. Our job is not to fight against the environment, but to diagnose the environment and act accordingly.

A stock's movement is determined by three layers, and their order of influence is as follows:

1. General market: The biggest factor. If the index is falling, the probability of your stock rising decreases dramatically. Fish don't swim against the current.

2. Sector and Theme Group: The second biggest factor. Institutional money moves theme by theme, not stock by stock. When money enters a group, both the leader and the last in that group rise, just at different speeds. If it's outside the group, even the best company will languish.

3. The Stock Itself: The smallest factor. Fundamentals, story, technical structure... These only make a meaningful difference when the first two layers are in your favor. Most traders build this pyramid in reverse. They fall in love with the stock first, then look at the sector, and never check the market. The correct approach is to go from top to bottom: First the environment, then the group, and finally the stock.

Reading the environment is not prophecy, it's diagnosis. We don't predict, we identify the current situation. The areas we look at:

1. Trend Structure of the Indices

Are the Nasdaq and S&P 500 above the 20 and 50-day EMAs? Are the EMAs upwardly sloping and (8 > 21 > 50) sequential? If the index maintains its own ladder structure, the environment is in our favor. 1. Market Breadth

If the index falls below the 50 EMA and cannot recover, we switch to defensive mode.

2. Market Breadth

If the index is rising with a few major stocks while the majority of stocks are falling, this is an unhealthy rally. Breadth indicators, such as the percentage of stocks above their 200-day moving average, show whether the rally is spreading to the base. A market rising with narrow leadership is fragile.

3. Are Breakouts Working?

This is the most practical test. Are the breakouts on your watchlist being followed, or are they reversing the same day? Repeated failures of breakouts are one of the earliest signals that institutional demand is being pulled. Your own trades are also an indicator: if you are repeatedly being stopped out, the problem may not be with you, but with the environment.

4. Behavior of Leading Stocks

Are the market's leading stocks making new highs, or are they being sold off with high volume? Leaders are generals. If the generals start to retreat, the army's advance also stops.

Risk-On and Risk-Off Rules of Conduct

Identifying the market is only valuable if it translates into action. Connect the two:

In a risk-on environment:

• Increase the number and size of positions
• Enter breakouts with normal size
• Don't sell winners early, let the trend carry
• Evaluate aggressive setups (EP, momentum breakouts)

In a risk-off environment:

• Stop opening new positions or reduce their size
• Tighten stops, clean up weak positions
• Cash is also a position and is often the best position
• Prepare a watchlist, accumulate ammunition for a reversal

The most difficult part here is psychological. Not trading during a risk-off period requires more discipline than trading itself. But remember: Capital protected in a bear environment is the fuel of a bull environment. Big money is made in a bull market, but by those who enter the bull market with capital.