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There was some very interesting response after the latest upbeat UK figures. The problem with judging a recovery is that you can’t confirm it until many months later when you can look back and say, “yep, that’s a recovery”. If a few figures start slipping early on then the fear creeps back in that the good run was temporary, the problems seem as bad as ever, and we’re all doomed….again, and so on.
What are we supposed to do then? Do we fade the good figures if we believe that they will reverse or do we go with the data and trade a recovery? It’s another one of those psychological conundrums we have when trading.
We’ve watched the world collapse into crisis and seen growth fall off the cliff and were very happy to sell that all the way down. So, why are we so reluctant to buy it on the way up? It’s because it’s easier to grasp fear and bad news. Bad news usually has no caveats. It’s bad so sell it. Like the news industry moto, bad news sells.
Good news is always taken with caution and reluctance. Is it really good? Is it temporary? Is it due to certain circumstances?
We’re going through fairly uncharted territory with central bank monetary policy. We’ve got QE whose effects we don’t really know. Is it working in the US? Doesn’t seem so on the face of it. Has it worked in the UK? Maybe, but we won’t know for a long while yet. Do we know where we would be without it? Not entirely.
Should it matter? No.
If it’s hard to pick your fundamental path when trading then just trade what you see. No one should be trading a Euro collapse and no one should be trading a US growth boom. We should be trading exactly what is happening. That is a Chinese economy slowing, a US economy flat lining, a UK economy showing signs of improvement and an EU economy yet to bottom out and a Japanese economy that may or may not awaken. For example, if you don’t believe in a UK recovery then trade the long game. Trading the short game will get you burnt with the current strength in data.
Whatever your thoughts are on QE, tapering, central bank actions, Bernanke, Carney, Abe, whether you think it’s a conspiracy, criminal, ridiculous, whatever the reason, the world won’t stop turning and whatever wheels are in motion are not going to be stopped by us. Just like a strong trend don’t fight it, roll with it. Trade it as it’s presented to you.
Whatever the reason the UK is showing signs of improvement. As an Englishman, long may it continue. If the run is sustained we could become the most important focus point in the next phase of the GFC. We’ve done our QE and we may be the first major economy to start looking at the exit door. All the talk has been about the US tapering and exit, and for good reason given the size of the task.
Albeit on a smaller scale, the UK might be the yardstick for what happens in the states. If things continue and we start putting our QE exit plans into action then we will be the first to see the true consequences of exiting. Little old Blighty could be leading the world out from the gloom. If so use it when looking to trade the states.
Everyone has strong thoughts on all subjects and the key is being able to disassociate those thoughts from trading what is actually happening.
Don’t ignore your feelings when trading but more importantly don’t let your feelings totally dictate your trading.