This is one of the most frustrating situations for a trader. You think you understand the economic back-drop and you have a brilliant case for why a currency or a stock should move in a particular direction and then they move exactly the opposite way.
The summer rally is a prime example. Who would have thought that the markets would be poised to rally if Spain was to request a bailout? Now that the ECB has put in place its bond-buying OMT programme the markets have decided that a Spanish bailout is a risk positive event even though Spain has the fourth largest economy in the currency block, its growth is in free-fall and the Eurozone’s creditors have no firm grasp how large Madrid’s liabilities will be. Likewise, public policy uncertainty is close to an all-time high in the US. The fiscal cliff is fast approaching and yet the SPX 500 is at a 4-year high and the Nasdaq is close to its highest level since 2000. So what is a trader to do: do you follow the crowd or risk losing all...
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