1 Fundamental narratives driven by market trends (Keep it simple: higher highs and higher lows in the global macro space)
2 Relative strength/inter-market analysis
3 Fundamental positioning (supply and demand/C.O.T. data)
4 Breadth/Sentiment
5 Backtesting (historical environments, how assets perform within those historical environments and entries and exits)
6 Monetary conditions
7 Seasonality
Everything else is risk management and psychology.
Most people have the same problem that Orwell brought up in 1984. Double think. The famous example in his book-The three slogans of the party "War Is Peace; Freedom Is Slavery; Ignorance Is Strength" are examples of doublethink.
As long as an authority figure (CNN, Fox, CNBC, Bloomberg...) says it, most will believe it. Most people don't like to figure things out for themselves. Being told what to do is enough. It does not matter if these are actual traders or investors. Appearances suffice. Wear a suit and speak with confidence and most people will follow you anywhere you want them to go. (See the Milgram experiment: https://www.youtube.com/watch?v=xOYLCy5PVgM)This is important to note because when we all first start trading we get stuck in thinking that these people all know something that we don't. Then we think that if we only knew what they knew we would never lose again!
Everyone has their own edge but no one is right all the time. The goal is to be wrong small and right big. If you lose 1% on each losing trade and make 5% of your account on average on your winners, you can be wrong more than you are right. Everything has to start with that simple understanding.
All this is to say that you need to come up with your own methodology. Something that you can execute over and over again.
I am not a trader who thinks that anything needs to link up for a great trade to happen. The thought that all technical time frames need to link up or that the fundamentals and the technicals need to link up is preposterous to me. My best trades have happened when the news flow is one way and positioning is bearish and then the price action is showing relative strength in a certain area or sector. Then you get a buy signal on negative news or negative fundamentals. These things are usually headed in two different directions since the market is always trying to look in to the future. There is a lot of wisdom in the original Market Wizards book from Bruce Kovner.
J.S. Is that to say that virtually every position you take has a fundamental reason behind it?
B.K. "I think that is a fair statement. But I would add that technical analysis can often clarify the fundamental 29 picture. I will give you an example. During the past six months, I had good arguments for the Canadian dollar going down, and good arguments for the Canadian dollar going up. It was unclear to me which interpretation was correct. If you had put a gun to my head and forced me to choose a market direction, I probably would have said "down." Then the U.S ./Canadian trade pact was announced, which changed the entire picture, hi fact, the market had broken out on the upside a few days earlier, as the negotiations were finishing up. At that to say, I felt completely comfortable saying that one of the major pieces ii the valuation of the Canadian dollar had just changed, and the market had already voted. Prior to the agreement, I felt the Canadian dollar was at the top of a hill, and I wasn't sure whether it was going to roll backwards or forwards. When the market moved, I was prepared to go with that movement because we had a conjunction of two important element!: a major change in fundamentals (although, I wasn't smart enough tc know in which direction it would impact the market), and a technical price breakout on the upside."
This all goes against conventional wisdom, but remember markets are complex. Positioning is important as a contrarian. Price does not equal positioning.
Think about it this way, If everyone is bullish. Literally 100% of market participants (this will never happen but let me finish) are bullish, who is left to buy? If everyone is bearish who is left to sell. Then if we also think that it takes a lot of money to move the market in one direction or the other we can start to see that extreme positioning can be detrimental to market direction.
So if you'd like to call me a contrarian, I am a contrarian. At the same time I am a trend follower because sometimes the best trends happen when no one in the world is thinking that something can move up, it continues to happen and everyone stays bearish. "Bull markets climb a wall of worry." At some point everyone will hop on. This does not mean that the trend will end. As the trend changes. We change. Not before, only after.
Comentários