Big-picture risks dominated markets in 2011, and stocks across most markets and sectors tended to move as a herd in response to news events.

For example, when the yield on Italian debt spikes, European banks sell off because many have significant exposure to this market, both to the sovereign bonds as well as to companies based in Italy. The banking sell-off, in turn, raises fears of a credit freeze in the E.U. and hits European stocks more broadly, affecting sectors as diverse as retailers and energy.

U.S. banks don't have as much direct exposure to Italian debt as their European counterparts, but they do trade with the big E.U. banks. So trouble in Europe can spark a sell-off in financials as New York markets open. This, in turn, can drag down U.S. markets and spark concerns of a U.S. economic slowdown hitting Asian markets, as well.

On the flip side, rumors of an E.U. bank bailout could send global stocks up as a group, regardless of sector or fundamentals.

This phenomenon came to be known by many investors as "risk-on/risk-off." When investors were looking to add risk they bought stocks with abandon, and when the preferred trade was to reduce risk, most institutional traders would sell all stocks and buy U.S. Treasury bonds.

Luckily, you don't have to play that game.