Info!! Profiting From A Muddied Hush-Hush Of Trading

Kudos to Downtown Josh Brown for picking upwards on a Bloomberg article yesteryear Ben Carlson that illustrates how it's non rising rates that are a threat for stocks, only inflation.  Ben notes the human style to cry upwards inward narratives:  this is happening because of that.  Such narratives rapidly snuff it consensus inside too across trading floors.  That leads to a form of conformity born of laziness.  Traders don't educate their ain models of rates too inflation, too thence alternative upwards on dominant narratives.  Excellent shorter-term opportunities tin arise when those narratives are driving trader too investor demeanour too splendid longer-term opportunities tin arise when those consensus narratives are disconfirmed.

Jeff Miller points out that trading problems typically arise when markets modify too nosotros are no longer inward our comfort zones.  (His site, yesteryear the way, does a dainty project of tracking inflation numbers, economical sector yesteryear sector.)  We snuff it especially uncomfortable when our dominant narratives are challenged.  When nosotros can't brand pregnant out of what we're seeing, nosotros understandably acquit inward reactive ways to lessen our discomfort.

We attain flexibility when nosotros persuasion marketplace narratives equally hypotheses too non equally conclusions.  This is where tracking correlations amid markets tin travel incredibly helpful.  So often, traders focus on their ain markets, failing to notice macro drivers that--rightly or wrongly--are impelling close term marketplace flows.  On Friday, I was chatting amongst a valued trading colleague too nosotros noted early on inward the session that the market's dominant cycle was cresting.  That led to a nice, early on curt merchandise inward the ES futures.  As rates began to motility lower, however, too stocks could non sustain downside momentum, I recognized that the "lower bonds, lower stocks" risk-parity bears had an chance to travel trapped.  The unwind of that narrative led to dainty trades equally nosotros detected the potential to motility from a cyclical to a trending short-term trading environment.

There's a muddy cloak-and-dagger no i likes to beak about:  large traders oft don't produce their ain research.  They build narratives based on recent cost activity too what others are maxim on the sell side, trading floors, etc.  That conformity creates chance too is a peachy argue for tracking marketplace chatter--but alone equally hypotheses!

Further Reading:

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