Having walked across to the other side of the room and picked up my dummy (spat yesterday) I’ll attempt to calmly relate to you how I see the market now.
Now it won’t be anything to do with levels, directions and/or strategies, more about mental health and stamina, if you will.
January, despite being only the first month of what is going to be another long year, has already shown and proven that market conditions, rather than adjusting and perhaps even improving after a tumultuous 2011 are instead only going to worsen and become further decoupled from reality. I mentioned in my final few posts of 2011 how hot money would predominantly determine direction and volatility in 2012, and so far this has certainly proven to be the case. Couple this with politicians seeking re-election rather than the bettering of financial and economic conditions and you have the makings of an entirely new trading environment.
The events of just this week have shown us that there isn’t a clear understanding of what it takes to fundamentally change current conditions, and this will be further proven come the end of February when the ECB prints more cash under the guise of its LTRO facility. Those in charge are reverting to the printing presses in an attempt to re inflate/kick-start lagging economies. Well for the US perhaps Ben needs to have a chat to Alan to see how that can go horribly wrong. Mario on the other hand while showing (initially at least) some common sense is dare I say, now heading down the same western path. This picture will not change this year and only become more severe.
Having established the Rumsfeldian “known known’s” it’s worth thinking about how to make the most of this knowledge. Sadly for those of you (myself included) that based their trading on economic rationalism and fundamentals and only used technical’s for confirmation, I proclaim that your time in the sun has come to an official end. It pains me to admit it, but having grown up surfing on Bondi Beach the very first thing I learnt is that there is no point in fighting the tide. It is an exercise in futility that can only lead to disastrous outcomes. Meaning, quite simply, that it is now time to “adjust or die”. The adjustment process begins with how you look at the market. Time to forget pretty much all you’ve learnt previously and start afresh.
The market this year will allow for the following style, what I like to call the “smash and grab”, that is, instead of being able to spot rational, relative value moves, trends and patterns, it will now be a time of spotting your opportunity, acting on it very quickly and just as quickly getting out of the market ready and looking for the next such move. Recognising that in these moves you’ll only be able to take small profits will be the key to your survival. Ultimately all of these will add up, so that hopefully, yes you’ve been in the market perhaps far more frequently than in previous years, but at the end you’re taking out approximately the same as you have done in previous years. Moves of one, two or more big figures that you were previously able to get on and sit with for a few days are no longer in play. Violent moves for the same distance will still exist of course, however the volatility of such moves make them rather difficult to trade and necessitate such wide stop loss orders that entirely erode rational risk/reward profiles.
Patience as always is the key and should become your new mantra. As I have experienced and am now firmly putting into practice, spit your dummy if need be, but take a valuable lesson from it. Take a mental health day if you need it, walk away from your screen, get out in the sun and breath some fresh air. This year, you will most definitely not miss anything in this market by stepping away for a day or so. The conditions will remain like this for the remainder of the year and the “smash and grab” methodology if put into practice properly will mean that you miss nothing and if anything perhaps actually enjoy your trading and life just that little but more.
And now, for that much needed walk in the sun with the dog.
Happy weekend folks.