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Bank of Japan preview – “may be on the verge of its biggest policy change in decades”

  
  Analysis
  • “Looking at the FX options market, USD/JPY remains the stand-out interest. One-week implied volatility remains at a very high 20% and volatility for the Bank of Japan (BoJ) meeting next Wednesday is priced as high as 40% or a near 1.7% move in spot USD/JPY. As events showed yesterday with the 2% USD/JPY fall, even at these levels the FX options market may still be under-pricing volatility. This huge interest in USD/JPY is understandable,” ING notes.
  • “The BoJ may be on the verge of its biggest policy change in decades. Even short-dated JPY Interest Rate Swaps have started to move and are at the highest levels (near 30bp) since 2008! We suspect few will want to stand in the way of the USD/JPY downside,” ING adds.

Bank of Japan governor Kuroda will be holding his regular press conference after the BOJ statement on Wednesday.

  • There is no set time for the BOJ statement on Wednesday, you can expect it most likely in the 0230 to 0330 GMT (2130 to 2230 US Eastern Time) time window. I’m leaning towards that later time, or even past it given there will be plenty to discuss at this meeting.
  • Kuroda’s presser begins from 0600 GMT (0100 US ET)

PBOC MLF liquidity injection today – unchanged rate expected (but some expect a small cut)

  
  Analysis
  • 700 billion yuan of this medium-term lending debt is maturing.
  • according to Reuters polling 12 analysts expect the PBOC rollover the 700 billion yuan, 10 expect and lend a greater amount, while 3 expect an only partial rollover
  • 21 of the surveyed analysts expect the MLF interest rate to stay unchanged at 2.75%, 4 expect a 10bp rate cut

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The rate on the MLF will give us a clue to LPR rates to be set on Friday. A cut would likely indicate a move lower on one or both of the LPRs. Unchanged suggests the LPRs will remain at an unchanged rate. Current LPRs are:

  • 3.65% for the one year
  • 4.30% for the five year
pboc mlf rate graph 16 January 2023

Decision-Making and Emotional Arousal in trading – #AnirudhSethi

  
Analysis, Education, Life

In the context of trading, decision-making and emotional arousal can play a significant role in the success or failure of a trade. Emotions such as fear and greed can drive traders to make impulsive decisions, rather than ones based on sound analysis and strategy. This can lead to poor trades and financial losses. On the other hand, a trader who is able to control their emotions and make decisions based on objective analysis and a well-defined strategy is more likely to be successful. It’s important for traders to be aware of the impact of emotions on their decision-making, and to have techniques in place to manage those emotions.

Why Grit Is Important To Trading ? – #AnirudhSethi

  
Analysis, Education

Grit is a combination of passion and perseverance, and it is important to trading because it allows traders to remain focused and motivated in the face of challenges and setbacks.

In trading, grit means having the ability to stay committed to one’s trading goals and plans, even in the face of losing trades or market volatility. This allows traders to learn from their mistakes, make adjustments as necessary, and continue to work towards their goals.

Grit also enables traders to maintain a long-term perspective and not to get bogged down by short-term failures. It is critical for traders to be resilient and persistent, as the markets are dynamic and ever-changing, this requires traders to be adaptable and be able to learn from their experiences and not give up easily.

Grit also involves being willing to put in the time and effort necessary to develop the skills and knowledge required to be a successful trader. This may require traders to be self-motivated, disciplined and to be able to work independently.

In summary, grit is important for traders because it allows them to stay focused, motivated and persistent in the face of challenges and setbacks, to develop the necessary skills and knowledge, and to maintain a long-term perspective.

Why do losses hurt more than gains? -#AnirudhSethi

  
Analysis, Education

Losses tend to hurt more than gains for several reasons:

  1. Prospect theory: According to this theory, people experience a greater emotional impact from losing something than they do from gaining something of equal value. This is known as the “loss aversion” bias, which causes people to feel more pain from a loss than pleasure from an equivalent gain.
  2. Anchoring effect: People tend to anchor their expectations to a certain point, and when the outcome is worse than expected, the pain of the loss is greater.
  3. Regret: People may experience regret when they realize that they could have made a better decision or taken a different action, which can amplify the emotional impact of a loss.
  4. Self-esteem: Losing can make people feel like they are not good enough, which can affect their self-esteem and self-worth.
  5. Social comparison: People often compare themselves to others and when they lose, they feel like they are not as good as others, which can be a painful experience.

It’s important to note that these are some of the reasons why losses hurt more than gains, but it may not apply to all individuals, as people have different levels of emotional intensity, and what affects one person may not affect another. Additionally, traders can work on developing a more realistic attitude towards risk and to focus on their overall performance rather than individual trades.

Optimism And Trading Performance – #AnirudhSethi

  
Analysis, Education

Optimism is a positive attitude or belief that good things will happen in the future. In the context of trading, optimism can refer to a belief that the market will move in a favorable direction or that a particular trade will be successful. While optimism can be a useful mindset for traders, it is important to balance it with a realistic understanding of market conditions and potential risks.

A moderate level of optimism can be beneficial for traders, as it can provide motivation and a positive outlook, which can help them to make better decisions and take advantage of opportunities when they arise. However, excessive optimism can lead to overconfidence and impulsive trades, which can increase risk and lead to financial losses.

On the other hand, excessive pessimism can lead to a lack of confidence in one’s ability to make profitable trades and a tendency to avoid taking risks.

It is important for traders to maintain a balance between optimism and caution, and to keep a realistic perspective when making trades. This can involve setting realistic goals, using sound risk management strategies and regularly reviewing performance to assess progress and make adjustments as needed. Additionally, it’s important to be aware of their own emotions and not let them cloud their judgement.

Understanding Lapses in Trading Discipline – #AnirudhSethi

  
Analysis, Education

Lapses in trading discipline refer to instances where a trader deviates from their established trading plan or strategy, and makes decisions based on emotions or impulses rather than logical analysis. These lapses can lead to poor trading decisions, increased risk and financial losses.

There are many reasons why a trader might experience a lapse in discipline, including:

  • Emotions such as fear or greed
  • Lack of confidence in one’s trading strategy
  • Overconfidence in one’s abilities
  • Lack of focus or discipline
  • Being too heavily influenced by external factors such as news or market rumors

It’s important to understand that lapses in discipline are a normal part of the trading process and that even the most experienced traders can experience them. To minimize the frequency and impact of lapses in discipline, traders can:

  • Regularly review and adjust their trading plan as needed
  • Stay focused and avoid distractions while trading
  • Remain calm and disciplined during market volatility
  • Practice good risk management strategies
  • Learn from their mistakes and use that learning to make better decisions in the future.

By understanding the reasons why lapses in discipline occur, traders can take steps to minimize their impact and maintain their discipline in the face of market challenges.

Regret susceptibility in trading : #AnirudhSethi

  
Analysis, Education

Regret susceptibility in trading refers to the tendency of traders to experience regret after making a trade that results in a loss or missed opportunity for a gain. This can lead to emotional and behavioral biases that can negatively impact trading performance.

Traders who are highly susceptible to regret may be more likely to hold onto losing positions for too long, trying to recoup their losses, or to avoid taking losses altogether. They may also be more likely to make impulsive or irrational trades in an attempt to avoid the feeling of regret.

To reduce regret susceptibility, traders can focus on developing a trading plan with well-defined entry and exit points, and stick to it. They can also work on developing a more detached and objective approach to trading by focusing on the numbers and facts rather than emotions. Additionally, they can practice risk management techniques to minimize losses and ensure they are well-informed about the market and their assets prior to making a trade.

It’s also important to remember that loss and missed opportunities are part of the trading game. Not every trade will be a winner, and it’s important to learn from mistakes and move on. Keeping records of your trades and analyzing them can also help you understand where you can improve.

Mental Flexibility vs. Sticking to Trading Plans: Which is Correct? -#AnirudhSethi

  
Analysis, Education

Both mental flexibility and sticking to a trading plan are important for success as a trader. Mental flexibility allows a trader to adapt to changing market conditions and to make quick decisions when necessary. However, without a solid trading plan, a trader may be unable to make consistent, well-informed decisions. On the other hand, sticking to a trading plan can help a trader stay disciplined and avoid impulsive decisions, but if the plan is not flexible and does not take into account changing market conditions, it can also lead to poor performance.

It is important for traders to strike a balance between the two by having a well-thought-out trading plan that is regularly reviewed and updated as necessary, while also remaining open to adjusting or even abandoning the plan in response to significant changes in the market.

In short, having a trading plan is essential but being able to adapt the plan in response to market changes is also important. A trading plan should be a guide, not a rule set in stone.

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