Lesson 1
Introduction to High-Potency Connections
Master these 8 connections to read the market like a system, not a series of random events. When you see one metric move, immediately ask: What does this imply for the connected metrics?
📊 Indicators mentioned in this lesson (click for details):
The 5-Basket Framework tracks metrics. The 8 Connections are the RELATIONSHIPS between those metrics that have high predictive value. Understanding these connections lets you anticipate market moves before they happen.
What Makes a Connection 'High-Potency':
- Causation, not just correlation: One metric mechanically drives the other
- Lead-lag relationship: One moves first, reliably
- Trade-able: The relationship leads to actionable positions
- Durable: Works across market cycles, not just one period
The 8 High-Potency Connections:
- Fed Net Liquidity (FED_NET_LIQUIDITY) → Risk Assets
- MOVE → Leverage Capacity
- Real Yield (REAL_YIELD_2Y)s → Duration Assets
- Credit Spreads → Equity Risk
- DXY → EM & Commodities
- Yield Curve (T10Y2Y) → Recession Timing
- USD/JPY (USDJPY) → Carry/Correlation
- SLOOS → Credit Creation
Each connection has specific mechanics, thresholds, and trading implications. The following lessons cover each in detail.
The Synthesis:
No single connection determines market direction. But when multiple connections align in one direction, the signal is high confidence. When they diverge, trade smaller or wait for resolution.
Check your understanding
Lesson Quiz
Quiz Check
What makes a connection 'high-potency'?