May You Live In Interesting Times…Or Not. Trading The Turbulence!

By | October 7, 2020

The saying goes, “may you live in interesting times.” The source is as unclear as is its intention. Widely accepted as an acknowledgement of good fortune, it’s original intent was ironic and actually meant to be a curse. Interesting times can be dynamic and new. Times when men walk on the moon and the internet connects us all. But interesting times can also be troubling, turbulent, and painful periods of history. It depends on your perspective.

We do live in interesting and ironic “market” times. At first glance the market is bullish. The negative aspect of this bullishness is that under the surface the market is being manipulated. It is being supported by excess liquidity, a need for yield, and by accommodative Federal Reserve Bank policies. This conflict

Therefore, any casual observer of market dynamics must come to the conclusion that the fundamentals (in many not all cases) have lost their primary relevance. Stock valuations are no longer judged by dictum set down in Wharton. Not even close. Why? Because profits don’t matter, big ideas matter. A company that captures investor imagination is often bought, even if it takes years to or never makes a profit. Valuation has lost its meaning in the traditional sense. What is valuable now is an “innovative” concept even if there is no actual market for it, big Broadway presentations, and cool CEO’s.

Interesting times, indeed. Maybe someday a Wharton instructor will look something like this:

(BTW Microsoft is a great company and the video is not meant to be an example of a company that is all show. It’s just a great video.)

Funny fundamentals then often translate to tricky technicals. One day short term fortune, the next a curse. So, what should you do if you find yourself blindsided and whipsawed by the fates. There are two options: widen your trading perspective or; shorten your trading perspective. The first option means simply to trade the weekly timeframe. Weekly charts make sense in almost any trading environment. They require wider stops which means smaller position size, but often they will keep you in a trade long enough for your original trading thesis to play out. The second option is the day trading option. It requires larger position size but tighter stops, and never holding a position overnight.

I prefer the former. Using the weekly charts is a good idea for beginners because it can limit frustrating whipsaws which discourage neophytes to the business. There is nothing worse than developing a trading idea based on a chart pattern, watching it begin to develop then suddenly reverse. You get stopped out and then, of course, it reverses once again. Now the price action plays out exactly as the set-up had predicted in the first place. Interesting, right? But it sucks. I like weekly charts and suggest new traders or traders in a slump give them a try.

When it comes to the market “interesting times” are negative in my opinion, and familiar times are better traded.

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