"There is a reason so many investors are increasingly becoming workaholics," warns former FX trader and fund manager Richard Breslow, "we are operating in a world where feelings always run high and ideas instantly become ideologies. Yet, no one really seems to believe in much of anything. "
In other words, the world is changing faster than ever - don't marry your biases.
If there is one thing every young trader should be schooled in is the understanding that, “If you snooze, you lose.”
As Breslow notes,
"Go away for a few days and it has become almost a parlor trick to be able to guess where markets will be...
And the worst mistake you can make in trying to pull that off is following the news, but not the price action, while away.
Which of course raises the question what is one to do, short of simply becoming a day trader?
My first reaction was to deal with it by being grumpy and cynical. That was short-term palliative but not ultimately lucrative. Although any desire for a return to full-on QE, with the mindlessness of front-running forward guidance, was resisted without effort. I’m hoping this is a transitional phase rather than a really unacceptable new normal.
So, fickleness is cheating me out of positioning for the long term based on the news. Can’t keep up with the text-readers who have direct links to the exchanges in trying to dance to headlines. And most unnerving of all, my beloved moving averages are not returning the affection. There are many things I can live without in this life, but Fibonacci isn’t one of them. Especially when I harbor the suspicion that he ran off with my horizontal lines.
Fortunately, necessity is the mother of invention. Plan B, or is it C, D or E, is to rely on two measures I never liked nor had much faith in. I guess they existed all this time for a reason. And it is their moment. But if keeping my head above water in these wacky times requires using some things new, I have also dusted off an old-time favorite. Letting other people do the heavy lifting for me. And for that, I am much appreciative.
Never has the weight of positioning been more impactful on where things go. Both in the build-up and the washout. I used to say that it didn’t matter if a trade was crowded if it was right. That is no longer true. It always matters.
The markets can simply no longer provide the liquidity. Nor does the private sector feel the responsibility to do so. But the trick is to spread your net far and wide in tallying up just what you think are the sizes of those crowded or deserted trades. CFTC data is only one imperfect measure that gets too much attention. But fortunately we have the BIS, IMF, World Bank and the like feeding us information like crazy. And so do many banks. You just need to dig it out, because the packaging isn’t necessarily done for everyone’s convenience. The other factor to remember is that the definition of “crowded” varies very much by asset class.
Rates and Bonds at extremes...
Net USD Shorts starting to drop from extremes...
My other new friend is the hammer. Nothing smashes a trend quite like a technical pattern that screams irrational exuberance. Oscar Wilde was wrong. In this case the cynic, or at least the well-compensated one, gets to learn the value of everything and realizes that it is the price that is irrelevant.
And lastly, all this position building and in your face price action can take place through someone else’s efforts. You get the opportunity to wait for the set-up and take the good risk/return reward.
What does this all mean? For traders, trends both go viral and are viral. You just have to choose which half of that definition you want to try to bank. It’s really hard to have both. Especially if you plan on taking that vacation.