Don’t be left holding the bag

I’ve noticed a trend of posts which can basically be reduced to be “it’s bad, so let’s short”. I’d suggest that we should go beyond this type of analysis to not get caught holding the bag. In short, the outright level of “how bad it is” isn’t what drives markets in the long run – it’s the trend of the data which matters most.

For example, here’s the 2008-2009 crash and recovery.

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Those who were short simply because unemployment was rising had the market go upwards of 40% against their trades at the end of the trend.

But if you had instead used the rate of change of unemployment, you would have been long several months earlier. You may have had a losing trade or two along the way, but would have captured the ultimate turn in the market very near the bottom.

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The point is this: think beyond the headline figures. Ask if the trend is accelerating or decelerating and use that as your baseline market bias. You’ll be miles ahead of the average trader.

TLDR – The market generally doesn’t care of it’s bad or not, it cares what direction the data is moving.

 

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

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