Marketlife Ep 16 – Trading around macro events

Every day, we are hit with economic reports, earnings for stocks, speculation, opinion, and a flood of other information. Some of these events move markets; some are non-events. How can we manage the volatility around these reports and what do they mean for the tactical/technical trader?

Continuing from this blog post, I go into depth on a few related topics:

  • The market exists to process the flow of information. Academic models might not “work” completely in the real world, but there are some useful lessons to consider.
  • Reports and events can result in extreme volatility, which equals additional risk. Managing that volatility is the key.
  • Direction is basically uncertain; assume that reports and information will have a random directional (but likely¬† volatile) impact on markets.
  • Consider both scheduled and unscheduled events. These bring different challenges to management.
  • Be careful of trying to predict numbers and reports. On some level, we can really ask, who cares? What matters, anyway, is the difference between the realized number and expectations. Accurately predicting numbers is extremely difficult, and does not necessarily lead to successful trades.
  • How you manage reports depends on your timeframe. If you’re a long-term investor, be a long-term investor.
  • A few specific ideas:
    • Tighten stops
    • Widen stops
    • Widen stops and reduce position size
    • Book partial profits
    • Exit the position entirely
    • Use the volatility for aggressive entries (or exits)
    • Do nothing at all, but at least you know it’s coming.

I suggest that the most important thing is you know these events are coming. That’s part of being an educated market participant. Don’t get blindsided!

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Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.