Market Reflections

Thoughts, ideas and musings on current state and evolution of financial markets

Market Hopes for Change

Friday, Feb 6 someone asked me “what is happening: we had a worst employment report for years and market is shooting up like there is no tomorrow?”
A trader makes money when the market moves and the unexpected economic reports do move the markets. Trading events has been a popular strategy among traders for long time. This is because stressed market “reasoning” for a move does not follow rational logic. Whoever has been trading for a while has probably experienced the “wishing, praying and hoping” phase when the market went against their position and fear of losing big time made rational decisions rare. Most traders apparently are under stress, unsure about the future. That makes up a stressed market. Praying, wishing and hoping that a bad employment report will make Washington to come up with a real stimulus package for the economy rather than for politicians is irrational. It is equivalent to believing in Easter Bunny and Santa Claus.

We will see more of this in coming months and years as the economic realities sink in. People will wake up to see that a person chanting, “Hope, Change” is not a magician. Government and politicians cannot change anything for better because they themselves are hopelessly lost. While lost, they will make irrational decisions and lose lots of our money. The actual change will come from us, not from them, no matter what they promise. It will take some time because first we have to figure out what to change and how to make things better, rather than just change things around using old methods to try to solve new problems.

Meanwhile, trade market’s reaction to an event rather than an event and have a plan when and how to close your position before you enter the trade in all possible scenarios that can unfold. It is much safer that way and even a big rally after very bad news will not get you.

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