Will the small shoots of recovery eventually bear fruit?

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This post was originally published on Trademakers

– or will they simply wither and die due to too much fertilizer? With decreasing interest rates, low levels of unemployment, a slight uptick in consumer spending and confidence, and even slightly weaker energy prices, there is no question that, after such a long period of depressing news, anything pointing to an improvement in our economic well-being is more than welcome.

Many will be encouraged by a few decent economic figures, and with six weeks to go before year-end, there will be a reluctance to issue too many pessimistic forecasts while the lights are twinkling on our Christmas trees.

What will things look like when those lights come down and the tree is in the trash can? Will there be enough good news during the festive season to keep us in a buoyant mood through January and February?

There are vastly more questions than answers, and this year, I look forward to reading some of the more extreme and outrageous forecasts that normally surface this time of year.

Some of these forecasts will be highly entertaining. and they should be positive in tone, as they will have been written when the market appeared to be holding, and we all like good news during the seasonal festivities.

As I recall, that was the situation back at the end of 2007.

Although the overall picture was bearish, bears became frustrated with how long it took the market to topple, questioned their analysis, and a few started to change tack—something they regretted just a few months later.

Whether history repeats itself is something we will have to wait and see, but there are a lot of similarities between the end of 2007 and what is happening today. The threats are different, and the market shape is not identical, but the tone is similar. We are focusing on the tiny sprouts that give us hope and trying to ignore the monsters hunched around the corner.

We all know about increasing Western and global debts. Global unrest is on the rise, and recent protests in Western capitals threaten the peace and livelihoods of our citizens. On top of this, we know that our inane, corrupt political leaders are not fit for purpose and are using this economic collapse to increase their control over our lives and finances.

But we know all this; the question is, what do we do with the tools, the financial instruments, at our disposal?

My advice is to remember that financial instruments are tools for speculators to use, not to marry. There will be ample short-term opportunities for the nimble trader and plenty of traps for those who sit with positions too long or hold positions, watching losses build up. So, have a strategy and stick with it.

The talking heads will have a different story every day, and as always, qualified opinion will encourage purchasing something or another. In a situation like this, it’s safer to trade on technical analysis than on stories or opinions that change more often than ministers in the British government.

Writing once or twice a week, I give a more general overview of what is happening a lot of the time, pointing out political or global events that will influence the direction our economies and markets might take. Because trading over the coming weeks should be much more short-term than my weekly output,  I will offer my ideas on how to play it.

There will be an opportunity to exploit, but only enter a trade if you have a precise exit level and incorporate it into a strategy.

There will be both buy-side and short-side opportunities. Utilize the tools available to go short when the opportunity presents itself. Protective stops work on both long and short positions. So you can swing trade or day trade, depending on your experience and level of comfort when trading shorter term.

If you manage a small fund, diversify or consider using other sectors. Considering how range-bound it has been, trading EUR/USD with low volatility all day will hardly provide a decent return.

Be proactive and be contrarian. Too many opportunities are missed by speculators who are just sitting there waiting for something to happen. Good opportunities will always present themselves, but the best opportunity might only be realized if you look beyond your comfort zone.

Branch out and trade little but often (within reason). Make your money work.

Few commentators have been as defensive as me over recent years, but this week, I am not talking about how people should hedge their portfolios to protect their assets. I am encouraging active traders to use the part of their capital earmarked for speculation more aggressively to give them the best chance of increasing their wealth over a very volatile few months.

“Audentes fortuna iuvat.”

The post Will the small shoots of recovery eventually bear fruit? first appeared on JP Fund Services.

The post Will the small shoots of recovery eventually bear fruit? appeared first on JP Fund Services.

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