Over the past couple of weeks, niggling issues have been eating away at my macro thoughts and my fundamental views.
The main issue that I was contending with was, this belief in the markets that inflation was going fall fast and like magic, the economy, the job market, and the consumer would remain fundamentally robust and insulated for all around. At some point not just a penny would drop, but we would all be up shit street without a paddle!
I recall a conversation this past week with a trader from Hong Kong to whom I answered her question about survival in these markets when looking longer term with trades. I said: -
- Be patient... let your trades hit the entry levels you want.
- Do NOT be emotional, plan out your RISK.
- Take smaller positions than usual to enable you to widen your stop.
- Have meaningful stops based on previous confluence areas.
- Learn from your past trading, remain detached.
Whilst I consider the above sound advice, especially remaining unemotional, one can completely understand the emotions traders have when they believe with all the geopolitics hanging over the markets that we are trading nothing more than one news headline away from a BLACK SWAN event.
GEOPOLITICS HANGING OVER THE MARKETS
For a while now, geopolitics had taken a back seat, everything at the forefront of conversations on Financial TV was based around, NFP numbers, CPi percentages, ISM data and PCE levels. Whilst the word Fundamental was used a wee bit, geopolitics was most definitely on the agenda until BIDEN’S visit to UKRAINE followed promptly by a PUTIN equivalent of a State of the Union address. Now geopolitics has become the current flavour.
I have written and spoken in YouTube presentations about complacency being one of, if not the biggest failing of the markets. It is actually quite frightening that GREED appears to be the key driver and that FEAR needs to be literally the equivalent of an immediate impending DOOM in order for the appropriate action to be initiated. Uncertainty no longer seems to be a major concern anymore. Whether the GREED factor has a built in “do not worry the Central Bank will step in to save us” lifejacket attached, and is at times the only rationale that I can apply to some market reactions.
My FEAR was that Central Bankers were too caught up in INFLATION they would not course-correct to handle RECESSION. I now think that we are witnessing complacency almost across the board, no matter what area of potential concern you look at.
- RISING INTEREST RATES
- QUANTITATIVE TIGHTENING (QT)
- RISING FOOD, ACCOMODATION & SERVICES INFLATION
- SECONDARY EFFECTS INFLATION
- CORPORATE DEBT LEVELS
- CORPORATE BANKRUPTCIES
- RISING CREDIT CARD DEBT
- HOUSING MARKET DECLINES
- MORTGAGE DEFAULTS
- POTENTIAL ENERGY INFLATION RETURNING
- CONTINUED SUPPLY CHAIN ISSUES
- UKRAINE WAR
- RUSSIAN RHETORIC
- CHINA EXPECTATIONS IN THE SOUTH CHINA SEA
- CHINA / US / TAIWAN RELATIONS
All of the above are issues (DOMINOES) that are uppermost in my thoughts when trying to select longer-term FX trades and to be honest, it’s been a while since I added a fresh long-term position. I am managing existing positions through this period of uncertainty / complacency as best I can. Whilst, I am not uncomfortable longer-term the short to medium term does throw up one or two issues and whilst I can, as a position trader, swat these issues away as noise, there will no doubt come a point when I will have to draw a line in the sand and say, well that's it!
I try to take comfort from the fact that those in control (Politicians and Central Bankers) are just better than me with great tools, a plethora of information and a swarm of backup staff to assist them. But, then again, I refer you to “INFLATION IS JUST TRANSITORY” .... enough said.
As I mentioned last week, we are in unchartered territory following the GFC and when you dig deeper into some of the comments made by leaders it does make you wonder are they just reactive to events. Proactivity is a dirty word!
It does make you think that the world is just one bad news headline away from a BLACK SWAN event.
So, as a simple FX trader what can we do?
I have nothing new to say other than take smaller position sizes, let trades come to you, pick your levels carefully and if you lose your trade conviction just exit the trade and move on.
Frankly, it makes sense that geopolitics should hang over the markets. Given the fact that whilst there are many DOMINOES lined up, if they were weighted, geopolitics should bear a greater weighting for effect. However complacency has been a definite factor of late because Financial TV has concentrated on a domestic narrow news flow that is much simpler and easier to cover and still obtain the sensational headlines required.
My list above could no doubt be enlarged but everything is here to take account of moving forward, it all depends what type of trader you are and how you control your emotions.
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Finally, always remember longevity in Forex trading can only be achieved through trading with a good MINDSET, RISK, TRADE and HEAD MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility. Trade with a TRADE PLAN, basically, plan your trades and Trade your Plan.
Be grateful for your wins and count them. Keep a POSITIVE MINDSET in play at all times, regardless of the market conditions.
The Pip Accumulator
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BLOG VERSION: #492 FREE NEWSLETTER
DATE: 26th February 2023