It’s that time of year when most people makes set goals for themselves for the year ahead, be it losing weight, quitting smoking, or getting fit. Pro trader Steven Spencer of SMB Capital shares his trading resolutions for 2013.
I was on BBC a few days ago to talk about the market’s reaction to the “fiscal cliff” legislation. I had hoped to use the opportunity to spend some time clearly outlining a concept I discussed in my final webinar of 2012. The BBC economics reporter prattled on longer than expected so I only had about 60 seconds to outline my market observations, which I have termed the New Normal. The idea is that after four years of above average volatility in the US equities markets, we had clearly entered a period of reduced volatility. And with the failure of each successive negative macro headlines failure to increase volatility, but for a few hours, this period should be accepted as the New Normal.
As an aside I find it a bit surreal to see major financial news media continue to promote the idea that we are living in some type of volatile period. Most traders in the trenches recognize that volatility has disappeared, which is doubly strange as there is less liquidity as well. The classic argument is that with less liquidity, volatility should be increasing and we have seen the opposite.
As a student of the market, this change is interesting to me but more importantly as a trader I ask myself what adjustments should I make to profit from it. So here are a few of things I will be trying in 2013 to better capitalize on these conditions.
1. More swing positions. It has been many years since I held swing positions on a regular basis. I felt that the risk/reward related to overnight risk were not justified compared to intra-day opportunities. But you have to look back to 2011 to find a period of violent reversals in trends that made overnight risk more difficult to assess. One of the huge benefits of being a “tape reader” who primarily derives profits from precise intra-day entries is I can improve the risk/reward on swing positions. So in a more favorable swing environment, it becomes even a better time for an intra-day tape trader to expand their playbook.
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