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Stay Flexible - Be Willing to Admit You're Wrong

Stay Flexible - Be Willing to Admit You're Wrong

Christopher Vecchio, CFA, Senior Strategist

Talking Points

- Obtaining a broad view is good, but don’t leave out the details

- Framing a trade using fundamental themes; technicals guide.

- Be quick to assess market reaction to news.

Coming into 2013 I was very bearish on the British Pound. High inflation, low growth, and a stagnant labor market made the British Economy look rather unappealing. Certainly, for the first six months of the year that view was warranted: the GBPUSD dropped by -6.85% while the EURGBP gained +5.37%.

Part of the reason for my bearishness on the British Pound was that Mark Carney would arrive as Governor of the Bank of England in July. In the months leading up to the announcement that he would take the reins from Mervyn King, Mr. Carney offered numerous suggestions for how to promote growth in a slowly growing economy while interest rates were pinned near zero percent.

While my bearish bias leading up to Mr. Carney’s ascension to the governorship was correct, it was certainly wrong after Mr. Carney took control of the BoE. In fact, the British Pound is the best performing major currency in the second half of 2013 (thus far). During the first month of the rebound (July to mid-August), I was skeptical. But when presented with new information – the BoE outlined a rather hawkish forward guidance in the August Quarterly Inflation Report and the Pound started to rally – I changed my opinion, dramatically. In December, I was near certain that a Carney-led BoE would mean excessive easing; in August, I suggested that the BoE was signaling an exit of non-standard policy measures. My initial forecast couldn’t have been more wrong in hindsight, even though it looked sanguine through the first half of 2013.

Stay_Flexible_Be_Willing_to_Admist_Youre_Wrong_body_Picture_1.png, Stay Flexible - Be Willing to Admit You're Wrong

Chart created by Christopher Vechhio using Marketscope 2.0.

My top trading mistake of 2012 was “Ignoring the Details.” The lesson was that if you ignore price for the sake of your opinion – even when the charts may be indicating otherwise – you put yourself in a considerably risky situation. However, building on my mistakes, I’ve become more flexible. It wasn’t just that I started to take long GBP positions during the second half of 2013 – it was also that I prevented needless losses resulting from arrogance. Bend your opinions to match the charts; don’t try to bend the charts to match your opinion.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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