Fresh off one of his best posts of 2017, former FX trader Richard Breslow is back on Thursday with another home run.
Ok, maybe this one isn’t a home run, but it’s a triple at least.
Breslow isn’t necessarily a fan of trading on grand narratives. After all, he’s a trader so you know, you’ve gotta make a day-to-day living – not sit around and wait for what he calls “some swan [that] will whisk your latest position to infinity and beyond.”
Read below as Breslow explains why you should probably be wary of those who come bearing stories.
Via Bloomberg
Psst, Buddy, I’ve Got a Narrative to Sell You
I’m all for being flexible. It’s a helpful trait in almost all aspects of life. In trading it means keeping an open mind and the ability to continuously update your prior probability distributions. But if you take it to the extreme and change your forecasts with every zig and zag, there’s a risk that it really is just a sign of flightiness. Not every change in asset prices signals a new and lasting paradigm shift.
- Trading the range isn’t a sign of lack of conviction. Rather it merely means you’ve made a decision on what market environment is in play. And, other than the fun fantasy of hoping for unexpected riches by praying that some swan will whisk your latest position to infinity and beyond, it’s best not to create grand narratives to accompany every purchase or sale. It’s a trade, not a lifetime’s commitment. We’re living in a world where trend mean days, hopefully weeks, and rarely months
- Change your grand narrative too often and it’s just a shallow way to spin a yarn. It’s the way humans play at being algorithms. Talk about having low aspirations. More problematically, it risks the making of all sorts of questionable causal links and contorted uses of correlations
- Go back to the beginning of the year, and think about the commentary on China growth. It varied between it was going to be really strong or surprisingly robust. Fast forward to the recent period when the numbers have softened, as things inevitably ebb and flow, and the implementation of PBOC measures to address non-bank excesses, which they were implored to do. All of a sudden, it’s over for them. It’s great to trade the latest news, but the second largest economy in the world doesn’t start and stop with the frequency we’re led to believe
- Europe is going away. Europe is back, with a vengeance. Take a look at bund yields year-to-date, as they just crossed the YTD average level, and remember how the stories differed in January versus February, versus March, versus April. And ask yourself why with all the risk behind them and the ECB suddenly needing to tighten, this morning, put spreads are coming out of the woodwork to be sold and call spreads in bobl are being scooped up. There’s trading and there’s stories
- All of which brings us back to the Fed and tomorrow’s non- farm payroll report. The Fed is trying, in their unique fashion, to make a distinction between an economy that will have its serial ups and downs, and rates which remain at crisis levels. They have a rate desire, even if not a secret plan. So be careful in spinning a yarn, either way, that every number is the new definitive sign of exactly where we are going for as far as the eye can see
Breslow’s narrative is the way to go!
LOL.