Talking Points:
- While strategy and psychology can significantly change trading activity, it is important to let markets dictate setups
- Adapting to markets is important as no single strategy or vision can navigate the many different eras we evolve through
- Between a reticence for trends, focus on erratic fundamentals and techs lacking girth; caution is warranted
See the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold on the DailyFX Trading Guides page.
I make it a point to regularly review the markets and my trading on a weekly and monthly basis. At the end of this past week, I realized that I had taken no trades. However, that fits the shape of the market backdrop that we have dealt with over the past weeks. The alignment that I usually look for between fundamentals, technicals and 'market conditions' was not only absent; there was outright conflict between the critical components. Conditions do change, and traders should make an effort to adapt to what they have to offer. However, there are times when the backdrop offers little definable probability regardless of whether we are trading short or long-term, shifting influence to fundamentals or technicals, employing a selective or thematic approach. Trading in such markets inherently entails trading lower probability scenarios - the antithesis of strategy.
Looking over global equities, the majors, in vogue high-risk assets and other markets; there was little purposeful trend to be found. The S&P 500 positioned for a break, but the bullish move stalled a day after clearing resistance. There were plenty of clean and high-profile technical patterns that were disarmed with little drive and thereby opportunity to trade for a breakout or range swing. AUD/USD's dribble through the neckline of its prominent head-and-shoulders pattern was a good example of that. Even the high profile event risk that in the past may have reliably staged volatility - if not trend - deferred to the more erratic appetites of the market. In 'normal' conditions, the mix of the US and UK 4Q GDP, meeting between US and UK leaders and range of noteworthy indicators would have positioned GBP/USD for remarkable event trading. There was little clear opportunity to be found however.
It is important to stick to a viable strategy and wait for attractive trades to set up naturally. Most traders - myself including - will grow anxious when they haven't taken a trade for an extended period. That anxiety can often lead to a shift in motivation from plan to emotion as the trader simply seeks action. That is the very definition of 'overtrading'. Given how unfavourable conditions are between erratic and short-term developments with a high degree of complacency; it is not unusual if fewer setups arise from our analysis. Patience for attractive and high-probability trade setups is clearly preferable to the gamble of uncertain but immediate stabs at the market. We discuss what kind of trading conditions we are dealing with in this weekend Strategy Video.
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