For a week filled with potential market killers, the market is somewhat flat today. I know last night when I was searching for trades, I decided to sit tight because of the uncertainty and for me, that is something. Frankly, the ruling coming out of Germany is the biggest potential market killer I see, but others out there can do some damage, so be aware …
I was struck by your statement “I shun the doomsayers and I embrace the realists.” Now how do you do this? How did you psychologically train for this? What I am thinking is that you keep an unbiased perspective as you evaluate the markets by merely focusing on the facts. But how do you keep yourself a realist? What is your technique or strategy?
The above reader is referring to my online bio here at TraderPlanet, and it is true. Not only do I shun the doomsayers, I actually poke fun at them in my writing, but that doesn’t answer any of his questions, now does it? So, here goes …
The way I do it is to do my homework. I read or listen to fact-oriented stuff. As well, I’ve found a number of “objective” analytical sources over the years. Ultimately, what I do is “psychological,” as I have conditioned myself to look for facts and to avoid the trap many fall into – simply reading or listening to that which is most popular or simply reading the headlines. Nothing formal, mind you, I just developed my behavior over time.
I must admit, though, my perspective is not always unbiased. Sometimes, when confronted with conflicting data or “news,” I pay less attention to factually bad data or negative news in favor of the good. This has been a problem because the market tends to follow the bad when the choice is between good or bad. Not always, but at times, this is the case. I have learned, though, that when I catch myself in this mode, I will sit it out, such as I decided to do last night, at least for today.
The news out of Europe is both good and bad and the facts are few regarding the upcoming events this week that will influence the market, one way or the other. For example, speculation is rampant about how the German court will rule regarding the authority of the European Stability Mechanism (ESM). I see the reporting and tell myself no one knows how this will go. My understanding of European politics, though (and politics in general), leads me to believe the court understands an outright ruling against the ESM would be a huge hit to whatever confidence that market has managed to muster since the ECB announced its bond-buying plan last Thursday. Thus, the court will probably “massage” its ruling to save the ESM plan while giving a little to the parties in opposition.
“Anybody who had any doubts that the ECB was prepared to bring the tools needed … any doubts must be removed now,” Patrick Honohan, who also heads Ireland’s central bank, said on Friday.
The above certainly is not fact, but it leads me to believe that if the German court does not outright kill the ESM plan, the market will react positively. If so, I will couple that with some factual data about Europe and then trade accordingly.
British industrial output soared at the fastest pace in 25 years in July, data showed on Friday, making up the ground lost due to an extra public holiday in June and increasing the chances that the country is crawling out of recession.
Trade in the day; Invest in your life …
