TraderPlanet Today offered up another interesting perspective on the market in the current issue. Kevin Klombies’ article, “Chart Presentation: Thesis Check” takes a wide view of asset-class movement over long time periods. Well, you know what I like, and I must say I like Klombies’ thinking …
During periods of crisis, it is all too easy to start looking at the details of the grain on the bark instead of stepping back to get a sense of the entire forest. As is our tendency, the more volatile the markets get, the more we are inclined to revert to macro perspectives.
Not only do I like his wide view of markets, I also like his analogy in the above excerpt. More often than not, myopia is the primary malady seen in trading and investing. As he says so well, sometimes we don’t see the forest for the trees, and, in my eyes, this is a huge problem that traders and investors have to overcome in order to achieve success. As I have said time and time again, one has to understand the big picture to find the “small” trade that is buried under the mountain of … well, you choose the metaphor.
The point is in these times of wild uncertainty and higher volatility, it helps more than a little to open your eyes wider to seek out the macro, as opposed to squinting to see the micro in current events. A single event, or part of a single event, does not tell the story we need to hear. For example, look at what is happening in the currency market because of the disastrous events in Japan.
Strength in Europe comes as currency volatility is quelled by news that the G7 will make a coordinated intervention in the yen due to the economic implications of the yen’s rapid rise in recent sessions to record levels against the greenback.
How does one trade this? How does one get a handle on this movement without putting this together with the immediate liquidity injection from the Japanese government to stabilize the yen? Furthermore, how can one assess a possible trade without looking at the larger picture, a picture that suggests quantitative easing will logically follow as Japan will more than likely start buying up their own bonds. Now, add to this the fact that the infrastructure of Japan is heavily damaged, and in the northern parts, virtually destroyed, and one has a long-term view to add to the process of finding the trade.
Day to day, the micro is talked about and day to day, currency markets jump. This is good for day traders and intraday traders, but my question is to these folks: how do you know where to position yourself for the trade if you don’t look out a bit, if you don’t understand what the next impetus for a jump will be?
Yes, I like what Klombies has to say about the macro view, and yes, I think we find trading/investing success in looking further out, not further in, but what I think is not necessarily important. More important to success is what you think and what you do, and in these wild times, thinking more is better than thinking less.
Trade in the day – Invest in your life …
