Question:
Last week I went flat to cash in anticipation of the election, FOMC, and monthly jobs report. What a bad week not to be long. Do you consider broad, macro events like the FOMC, monthly jobs reports, Chicago PMI, consumer sentiment numbers etc. etc. in deciding whether to buy, hold, or sell positions? Do you ignore these macro events and rely strictly on trends and charts to guide your trading decisions?
Thanks for your thoughts and insight.
Bella Responds
We trade mostly intraday so often we get flat right before a macro announcement. If we are long an oil stock and Crude Inventories is about to hit, then we are generally flat.
Why? Because we cannot define our risk/reward. We do not know what will be announced. We do not know how much the market will react to this news. If we started a position in RIG, with no news about to hit, say long 68.25 with a stop below the whole, and an upside through 69, then we have our risk controlled. If we are in this position and a funny Crude Inventories number hits we may not be able to exit till 66. Here we would be in a trade where we are not controlling our risk.
But say you are making a longer term trade in RIG. Say you are long above 60 because you are seeing data that oil will be much more expensive by the end of 2011. You see above 60 technically as very significant on your 6 months charts. Fundamentally there is a catalyst that inspires your long. Well now in this trade a Fed announcement, the Jobs number, Crude Inventories announced on one day may allow you still to control your risk.
The question is: will this announcement allow you to control your risk in your trades?
Mike Bellafiore
Author, One Good Trade
5 Comments on “Traders Ask: Flat B4 Macro Events?”
Feeling the same pain. Went flat for the news, missed the large move, got back in above the SPY 122 resistance, got stopped out near the lows this morning, and now I’m in again after 122. I recommend a cold shower and the reminder that missed moves aren’t lost profits. What were my mistakes? I should have entered on the pullback, not in the middle of the move. I thought the move was going to get away from me and the pullback would be higher than where it was now. TA told me different, but I should have weighed the risk/reward better. I think I would have seen it wasn’t worth the risk not to wait until the pullback. My stop should have been below the EMA 20 instead of a few percent below the gap. Two days ago I thought the gap would be good resistance, but when we almost touched it yesterday, I should have revisited my assumption, weighted the risk/reward and moved it. Was getting back in at 122 the correct thing? I feel the market wants to go higher and I want to be apart of that. I entered after we broke the EMA 50 and confirmed it was a bullish trend day. To make sure I don’t make the same mistakes, I’m going to make sure I evaluate my GTC stop/limit orders every night.
very nice job here evaluating your work!
Thanks! It’s all from what I learned in One Good Trade. I took a ton of notes and tried to create worksheets to follow on my trades, like the examples in the book. Typing everything out really helps, but like I said in my previous post, my mistake is not revisiting my longer positions every night. Take care!
A couple thoughts:On the bigger picture, it is remarkable how many times reports confirm existing technical setups. I have seen it over and over again for more than 10 years, and at some point I stopped being surprised by it… it just keeps happening.There are so many more reports than there were a few years ago (for equities), and they are a lot less significant. I remember the good old days (2002ish) when you could trade a number for 10 handles on either side of the release… this happened again through the financial crisis… but there are just SO MANY damn reports now that it is hard to be flat intraday in front of them.The one thing that is unacceptable (to me) is getting smacked by a report you didn’t know was coming out. I usually lighten up before reports, and if I don’t I can’t get irritated by the outcome. No smacking my desk if I lose .50 in SPY because I was holding through a report… that comes with the territory. I concrete suggestion I can give is, if you you’re holding multiple stocks in the same sector, get flat in all but one in each sector. You don’t want to have to run around putting out multiple fires if things get bad.
BTW… on a multi day level I would never do what you did. I cannot assume to know what impact reports will have on my positions so I just put them on and respect the appropriate stop levels.
earnings and macro events can prove to be great catalysts for a trade, but as we have seen even good to great news can be cause for a sell off… I will normally use a hedge depending on the client or just hold if I believe in the position..if the stock is up nicely prior to the announcement I have learned to just take the profit and move on.