Reflection on traders and Olympians

Not unlike Olympians, investors must train themselves to control their emotions. This training begins with the development of an underlying macro philosophy one has of the market. This philosophy leads to a better understanding of one’s own risk tolerance. From there, investors can form an investment strategy and develop a set of suitable and sustainable investment rules (risk management). Lastly, but definitely not least, follow those rules. That’s it -- now perfect it!

Training, as much as it may seem like it, is not the most difficult part; the biggest challenge is accurate self-assessment. This is even more burdensome since no one likes to admit that they’re wrong.  “It wasn’t my fault, the market did so-and-so.”  But owning and learning from one's mistakes is a skill that -- if used, if understood, and if not discounted -- becomes the greatest tool an investor can have.

Looking Ahead: Week of August 13 through 17

The latest numbers were limited and mixed.  The best news was that exports are still growing.  This is good for the manufacturing sector.  The productivity numbers put company profit growth on the fence.  With unit labor costs trending low, a boost in output and revenues could lead to upside potential for profits.  But lack of output growth leaves profits languishing—bearing in mind that expectations for profits are rather low.

The consumer and manufacturing sectors have been wavering and we get news on those fronts.  The highlight of the week likely is an update on consumer spending with the retail sales report. Consumer sentiment also prints.  Manufacturing news posts with Empire State, industrial production, and Philly Fed.  Housing recently has shown modest improvement and the housing starts report could indicate if that trend continues.

Looking Ahead: Week of August 6 through 10

Equities rebounded on Friday after Thursday’s losses and turned the week into a positive one for most of the indexes followed here. In the Asia Pacific region, only the Nikkei (down 0.1 percent) slipped on the week. All European indexes despite the day to day volatility managed to gain on the week. In North America, the S%P/TSX Composite (down 0.9 percent) and the Bolsa (down 1.2 percent) were unable to recoup all of the week’s prior losses. Gains ranged from 0.2 percent (All Ordinaries and Dow) to 3.9 percent (FTSE MIB).

The reasons for Friday’s rebound were the better than anticipated U.S. employment report and second thoughts about ECB President Mario Draghi’s comments at his post meeting press conference Thursday.

Looking Ahead: Week of August 6 through 10 

A light week of economic news is highlighted by consumer credit and international trade.  Confidence numbers are not great but credit data are hard numbers and could point to moderate consumer strength. Meanwhile, trade data are a big question mark due to weakness in Europe and slowing growth in Asia.  But lower oil prices are likely to come into play.

Looking Ahead: Week of July 30 through August 3

First Friday is back and that means a highlight is the employment situation. But there will be earlier news on the wavering consumer sector, including personal income, consumer confidence, the ADP private employment report, and motor vehicle sales. Manufacturing also has been wavering and key updates will come from Markit PMI and ISM manufacturing. But at mid-week, competing for the week’s highlight will be the Fed’s FOMC statement and whether there is any new policy initiative.

How many currency pairs to trade or monitor per day/week?

Is it better to focus just on one currency pair? Or is it better to focus on as many instruments as possible? I don’t think there is a simple answer to these questions, it all depends on each trader, but there are certain guidelines that you can take in consideration to help you feel more comfortable with your system, which will help you trade with more discipline and at the very end, get consistent results. Monitoring only one or two currency pairs/instruments For newbie traders, this is definitely the way to go. As you start looking at charts, you could feel overwhelmed by the amount of information you could get by monitoring many currency pairs, sometimes it is even difficult for veteran traders (go figure), so you need to be careful if you are a beginner trader. So as you start getting acquainted with charts, the Forex market, etc. Probably the best thing to do is to focus only on one, two or three currency pairs. This way you will get to know each currency pair better (each one has its own personality), trading ranges, spread, etc. There is just one slight problem that I think could make a big difference on your results as a trader. What happens if the chosen currency pairs aren’t in a clear market condition? What if you don’t know what the market is likely to do on the following hours/days? You are right, you will force yourself to take trades on those currency pairs, and that, and it’s not good for your trading results. For instance, many (many many) traders only monitor the EURUSD, and you know something, it’s been months and months since I haven’t placed a trade on the EURUSD!!!, why? Because I see no clear condition, I had no idea of what the market could do on the following hours/days (although the market conditions on the EURUSD might change in the following days/week, it’s about to break a clear support level). Anyway, why would I trade a currency pair that I have no idea of its future movements? When there are other currency pairs that are trading in a clear condition… Which one would you choose? I go for the one that has clear market condition. Monitoring many currency pairs/instruments I’m not talking about trading many currency pairs at the same time, I’m talking about monitoring many currency pairs or instruments so that you can determine which ones have the clearest market conditions, which ones are more likely to move up or down, so that you can focus on those currency pairs, and get rid from the ones that have an erratic behavior, or have no clear market conditions. That’s exactly what I do, at the beginning of every trading day, I do analyze the long term charts (daily and 4H charts), and with this analysis I trade to conclude the following: Which currency pairs I’ll trade any particular day On which currency pairs I’ll look for long opportunities and on which ones short opportunities Possible entry levels for each currency pair So, its not like I’m trading all currency pairs at once, instead, I decide which currency pairs I’m trading each day. Some days I end up looking for trade opportunities on 5 currency pairs, sometimes 8, some others 2 or 3, etc. At the end of this analysis, I end up with a trading plan, which helps me trade with more discipline. So the idea is to trade the currency pairs that have a clear market conditions, not just trade a currency pair because you decided to trade it regardless of its market condition. What am I suggesting here? As a beginner trader, it would be best to focus on just a few currency pairs, get to know them: average trading range, volatility, personality, etc. But as you get more experienced, you need to add more possibilities to your arsenal, and of course, only trade the ones that have clear market conditions. What do you think?

Looking Ahead: Week of July 23 through 27

For the big event on Friday, investors nerves will be tested as they await to see if Q2 GDP tops or falls short of the Q1 sluggish pace. But earlier there will be updates on manufacturing and housing. Whether manufacturing has softened will be updated with the Markit flash PMI, Richmond Fed, durables orders, and Kansas City reports. Housing news includes FHFA house price index, new home sales, and pending existing home sales.

Looking Ahead: Week of July 16 through 20

The bottom line
The recovery continues with modest forward momentum. International trade is expanding but at a slower pace than some months ago. The consumer sector is still positive but also less robust than earlier in the recovery. Inflation is not a threat except at the dinner table. The Fed still has plenty of room to maneuver but many on the FOMC are skeptical, doubting that additional policy moves would do much good and, in the worst case, would create inflation risks down the road.
Looking Ahead
Week of July 16 through 20 Investors will be on heightened alert given the many market movers slated to hit the wires. The updates include consumer, housing and production data including retail sales, housing starts and existing home sales. Regional manufacturing data from the Empire State and Philadelphia Fed plus national industrial output data will update the manufacturing outlook. Additional hints—or not—on QE3 could come via the Fed’s Beige Book on Wednesday.