Down 800, up 900... Down 500, up 600... a rumor here, a tweet there, and the algos technically dominating the markets means stocks remain range-bound in headline-hell...
And amid the range-bound nature of markets, volatility has exploded to its highest since 2011...
But, despite the uncertainty, former fund manager and FX trader Richard Breslow tells traders not to give up, "headlines aren't the enemy, embrace them..."
I read a really useful strategy piece last night. It listed all of the things that have changed since the latter half of November that already have, or potentially could, impact their year-ahead forecasts. And that is something to be lauded. If there is one thing we should have realized by now, it’s that we don’t live in a static world. That’s no reason not to trade, but it does argue against stubbornness.
Traders seem to have forgotten the purpose and use of forecasts. Blame that on forward guidance. In that instance central banks used them to make promises. Ones that were largely, but certainly not always, something they could control. Quantitative easing was meant to be understood as an immutable force.
But a real forecast can’t be divorced from its time and context. It must be constantly updated based on all sorts of criteria. That doesn’t make them wrong or poorly crafted, just alive. And to benefit from them you need to remember flexibility is key to success and should never be confused with fickleness.
Communication is virtually instantaneous and social media plays a big role in molding popular and even professional opinion.
Liquidity and slippage are things to be constantly evaluated.
Geopolitics is back to affecting asset prices in a big way.
And to make matters even more interesting, the jury is out on the global growth outlook. Which for now at least, most are assuming is no longer closely synchronized.
Are we most likely in an extended period of greater volatility? Yes. The world has changed. That’s just life.
The math to deal with position size adjustments given expected conditions is pretty tried, true and straightforward. You need to adjust for it, not declare defeat. Something has to change and that is going to be you. Grumbling about it does nothing to bulk up the P&L.
Which brings us to the single most common complaint I hear. Too much headline risk. We have always had news that we jumped to. It’s just that if you trade with a short-term horizon there is a greater necessity to constantly be vigilant. It’s hard work. It can involve long periods of boredom. If that’s not your thing, come up with a different trading strategy. I’ve never seen so many traders psych themselves out over this issue.
When the Brexit vote headlines hit yesterday, GBP/USD was little changed on the day. It took over four hours for the pair to reach bottom, with the bulk of the move occurring well after traders had a chance to digest what they heard. And, lo and behold it stopped and bounced just above 1.25, a level very much on many people’s radar.
I’ve noticed that headline-inspired moves very often respect the technical levels quite meekly after the initial mayhem. That in itself is something that can be used. Maybe not the fairest of examples, but there is opportunity out there if you want to chase it.
There is a big difference between winding things down before the holidays versus giving up.