Having spent Monday contemplating how and why traders have lost their confidence, and Tuesday explaining that although the jury is still out on the viability of the reflation narrative for FX and rates, equities will continue to stick with the “tax cuts are coming so BTFD” mentality, Richard Breslow is back on Wednesday asking you to “stop acting like an emotional train wreck.”
We like today’s missive from Breslow because it underscores the point that you really do need to take a holistic approach to markets (which means thinking macro) and use that approach to inform your day-to-day trading decisions.
And, in keeping with the theme that’s dominated the discussion so far this week, the former FX trader turned Bloomberg contributor says one of the main big-picture questions you need to answer for yourself is whether and to what extent the central bank put will remain in place.
On Receipt – Stop Acting Like an Emotional Wreck
We’ve been moving away from a world where investors were willing to say, “I see it, but I don’t believe it” and do something about it. The contrarian view, where you hope to win big by standing your ground or catching the market offside just before prices reverse. There are few more empowering feelings than the belief that you’ve just got confirmation that you’re smarter than the next guy. And nothing more intimidating if you’re that next guy.
- In the new zeitgeist, you’re more likely to hear, “I let my emotions get the better of me.” Only day traders can get away with and thrive being wildly bullish one day and sure everything will collapse the next. Yet that’s increasingly the trap real investors are falling into
- It’s a tough trading environment and fair to say that confidence is low. Yet all you hear is people expressing themselves in binary absolutes. Which is a problem when the noise level is deafening and many of the issues that are driving markets analyzable only to the extent of supposition
- Having a big-picture view is very important. And then you need to file it away for context. Markets are behaving like they’re in a step class, but the real economy and global demographics don’t bounce up and down at the rate people seem to think
- Decide questions for yourself like whether global growth is expanding or not? At the end of the day is there likely to be additional or less quantitative easing pumped into the system? Are sovereign wealth funds apt to continue to increase their commitment to global equities or go back to sovereign debt coupon clipping?
- The answers won’t help you trade the very real, if unfortunate, emotional panics and analytical excesses, if you don’t have technical discipline. But will provide the grounding to understand why a buy-the-dip mentality continues to exist in equities, emerging markets have been so happy or where the range in Treasury yields is likely to migrate to