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Economic data coming up in the European session

Good day, everyone! Hope you’re all doing well as we look to get things going in the session ahead. It’s been a tug of war in the battle of risk since trading yesterday as markets are once again now appearing to shrug off fears concerning the coronavirus outbreak.

Major currencies are trading keeping more calm with the aussie leading gains after a slightly better-than-expected Australian Q4 CPI data earlier. That said, the trimmed mean reading – RBA’s preferred measure – still remains below its target band of 2-3%.
Looking ahead, it is going to be all about the risk mood once again with little notable data releases in the European morning. But with Apple earnings keeping investors hopeful, perhaps the situation will be more calm in the hours ahead.
As such, expect coronavirus headlines to continue to dominate proceedings before we move on to the Fed later today and more key tech earnings in Wall Street.
0700 GMT – Germany December import price index
Prior release can be found here. A proxy indicator of price pressures in the German economy. A minor data point.
0700 GMT – UK January Nationwide house prices
Prior release can be found here. A general overview of housing market conditions in the UK economy. Not a major release by any means.
0700 GMT – Germany February GfK consumer confidence
Prior release can be found here. An indication of consumer morale towards the German economy, which has been keeping more subdued lately. Expectation is for the reading to reflect similar sentiment in the early stages of the year.
0745 GMT – France January consumer confidence
Prior release can be found here. A general read of confidence towards the French economy, which has been holding up decently – but not suggestive of anything stellar; which mirrors the economic performance of the country since last year.
0900 GMT – Eurozone December M3 money supply data
Prior report can be found here. A gauge of credit conditions in the euro area economy, which continues to be holding up well despite economic concerns. A minor data point
0900 GMT – Switzerland January Credit Suisse investor sentiment
Prior release can be found here. The reading measures analysts’ expectations on the Swiss economy and other economic expectations over the next 6 months. Low-tier data.
1200 GMT – US MBA mortgage applications w.e. 24 January
Weekly US housing data, measures the change in number of applications for mortgages backed by the MBA during the week. Not the biggest of data points, but a general indicator of the housing sector sentiment.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading!

A Common Misconception

We’ve all heard it before: You just need more winning trades than losing trades in order to be profitable….

Wrong.

There’s a common misconception out there that more winners than losers automatically results in a profitable account. I personally don’t think that’s the case at all. In fact, the more important thing to worry about is how big those losers are relative to your winners. You can have more winners than losers but have your losers result in massive drawdowns that your winners can’t make up for. I can’t begin to tell you how many horror stories I’ve heard about just 1 or 2 trades completely ruining a portfolio filled with all these other winners. So to me, I believe that as long as you keep your losers small, you can have plenty of them and still keep an extremely profitable account.

And this really just plays into the importance of risk management. I know I harp on this a lot, but it’s so true. The only thing that matters is managing your risk. I don’t care how you come to your conclusions. It’s irrelevant. And I get nasty emails sometimes from people disagreeing with my methodology. But the truth is, who cares how we come to our conclusions? Balance sheets, income statements or lunar cycles – it doesn’t matter to me. I just want to know where we’re wrong. At what price is the original thesis incorrect? And therefore, how much are we risking to put on this position? (more…)

THE VERY SUCCESSFUL TRADERS

The very successful traders I’ve known are very aggressive.  When they’re right, they press their advantage.  They add to good positions or keep re-entering in the direction of their idea as long as nothing is proving them wrong.  “No one ever went broke taking a profit” is not how the best traders operate.  What Dr. Kiev was saying was get out of losing ideas quickly, but really milk the winners.  A good trade is valid until proven wrong.  Just a few more big winners make a big performance difference by the end of a year.  Risk management is not just cutting losers short; it’s also ensuring that the average size of your winners handily outstrips that of the losers.

Do Losers Average Losers

Do losers average losers?
Averaging down is usually compounding your loss had been my experience.

Or, throwing good money after bad money.

Averaging in or out looks a lot like hedging/scalping the gamma of an options position. Counter trend if you’re short, trend following if your long.

How you amend your position with respect to some factor (be it equity, time, what-have-you) is imho the next frontier, and the most productive, to-date, endeavor in portfolio management (and little understood because people had not crafted the tools to study it).
Adding to losing positions is portfolio insurance in reverse. The points bad of portfolio insurance, are points good now in this exercise and vice versa. There is an enormous, fertile, ocean-sized domain to be explored and exploited here, and there is the opportunity to step beyond mere aphorisms in this regard.
Ralph, as I understand what he does is the worlds master of averaging positions—but not for short term trades—only trades where he knows the position will show a profit…unlike we short term traders that often buy at all time highs, etc.

Just because a trade goes against you initially, doesn’t mean the trade isn’t good. If the conditions that got me into the trade in the first place still exist and I didn’t go all in with my full package initially, I’ll add to my position. All it means is I was a little early on my initial execution, and when the trade is working, I’ll add aggressively.

Yes indeed. (more…)