Traders should be wary of trading in the face of data releases
It is a very busy week for traders and there is a lot of macro data being released. We have the Bank of England tomorrow and Non Farm Payrolls on Friday. It certainly looks like Sterling is being positioned in expectation of a rate rise. Sterling has behaved very well. It has maintained the bid tone generally. It seems to be that there is news coming from everywhere and that is very hard to be able to position yourselves. Steven Woodcock, Head of Risk Management for Tera FX tells us that when we have markets like this we have a short period of mad market and only afterwards do traders sit down and take stock of what they have done.
The market feels like that in the face of the Bank of England traders are getting ahead of themselves. Complacency means that moves will happen and then they will look backward and look forward to the payrolls on Friday. It is a tough market trading position. This is exemplified by the fact that traders have already predicted the BoE rate hike. Steve says that this is a bad way to trade and that you should not be complacent. As a trader you shouldn't try to predict these things and try to avoid getting involved in the run up. The risk reward profile is far closer than it used to be.
If you are trading these markets you have to be wary of your stop loss position. Given that with stop losses you have to accept slippage. The big boys will step away from the market and take the liquidity away with them. Banks, Mid and lower tiers are stepping away and not getting involved in these events. In the face of events you have to widen your stops. Guaranteed stops are not the way forward. They are unplayable. You are opening yourself up to unlimited losses.
To see more from Steven on Core Finance use this link: http://www.corelondon.tv/?s=steve+woodcock
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