Trading 2019 – Market Conditions & Go-Forward Plan

Published on: January 02, 2019

Before I start – this article is not about making New Years resolutions. I only break those anyway and after you break one? Back to normal, isn’t it?  What this is – is a consideration of where the markets are right now and whether a shift of focus may be required. Looking back at my own trading, I was way down in terms of trade volume (actual positions) on the US index futures in 2018, compared to 2017. The reason for that was simple. The index futures had become really volatile and I’d made the decision to watch the start of each day but take a pass when it was really volatile. Which was a lot of days in the last quarter.

Regardless of how you trade – when the market changes that much, you can either adapt your approach, stand to one side or get slaughtered. There is no “carry on the same and get decent results”.

As we move forward, how likely is it that the US Index Futures will remain at these levels of volatility? Is there any other recent situation we can look at that might help us make that assessment? Well I think there is….

…Interest rates….

Which as you know, went on a decline from 2008 and flatlined with few changes until 2016, There were even threats to take it below zero. These changes hit certain groups of traders pretty hard. In particular, Aussie prop firms specializing in trading interest rate spreads. A number of firms went out of business or got taken over – and we can attribute this to pretty poor conditions for the spreaders. For those not trading the spreads, you probably also noticed the breakdown in the inverse correlation between Index Futures and Interest rates. That was an impact on many traders (like myself) but not an earth shattering one. Bottom line though – if market changes can close down a prop firm, it they could, of course, impact us independent traders.

For sure, markets can change and stay changed for an extended period. Right now the Democrats are about to take over the house, we know that “Tump Tweets” can have an immediate impact on the markets. With the Democrats in the house, it’s hard to see how the tweet volume will be reduced. The “Trade War” isn’t over and Brexit is still in a state of Flux. There’s a good chance we’ve got at least 3 months of the same and maybe more. It could be like this till the 2020 election.

My personal take on this, is that it makes the index futures hard to predict and any ‘pre market analysis’ becomes useless on many days. After all – when news or a tweet steps in – the markets are instantly “non technical” – they are news driven, so there’s a lot of effort wasted on prep. On the other hand, there’s some great momentum plays on index futures BUT it should no longer be considered a “bread and butter” market.

As I move forward with 2019, I’m looking to spread my wings a little and lean more on some more consistent markets. I think Crude fits the bill but I’ll be looking at a few other markets. I don’t want to become a trader that trades 20 markets but stay as one who specializes and gets to know one market well. At the moment, the S&P 500 is not behaving consistently enough to be that market.

So where does that leave you? Well, if what you do is working, then stick with it. If you’ve struggled over the past months and some of that is because of increase volatility, don’t stick with it because of the sunk cost fallacy. I have been watchin the S&P500 every day since around 2005. That’s 14 years. Moving to other markets because of what’s happening right now, isn’t throwing away any of that. The S&P will come back at some point. It’s just that right now, it’s become a different beast and one I choose not to engage with at the same level.

I actually feel quite good about this change because it gives me a chance to step back, which is usually a useful thing to do anyway. I envisage about 3-4 weeks work before I have a go-forward plan which will mostly be a process of reviewing market action on other markets of late to select a good fit and then run with it.

I’ll keep you posted!

Happy New Year