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The Shifting Shares View: Eight rules for trading through the coronavirus pandemic

The market is incredibly active right now, and many traders are trying to profit. However, with such volatility on offer. the potential for blowing an account has never been higher. With this is mind, here are eight rules to take away.

The market is incredibly active right now, and many traders are
trying to profit. However, with such volatility on offer. the potential for
blowing an account has never been higher.

With this is mind, here are eight rules to take away.

Do not take the market home

Everyone has losing trades. Well, almost everyone. Only
gurus and affiliate scammers (I
exposed them here
) do not have losing trades.

Losing is an occupational hazard. Not only that – losing is
an occupational cost. Losing is not a choice.

But how much we lose is always a choice. Always use stop
losses and always take losses quickly. By cutting losers we remove the
possibility of large losses.

Large losses are bad for our physical capital but also our
psychological capital. Large losses can wear us down and make us trigger-shy.

Do not let your emotions get in the way of following your
rules and your system.

Do not take the market home.

Keep a trading journal

Monitoring progress is important – but especially so in
periods of high activity. If I am placing 20-40 trades a day, I need to know
how I am doing.

If I do not – how do I know if all of my activity is
generating alpha and profit?

Journaling also ensures we follow our system. Traders who
follow a system have an edge over the trader who is unprepared and does not
know what to do.

Trading is a habit – and good habits build good traders.

Keep a trading journal.

Monitor the price action

Highly volatile markets have surprise moves. This can result
in significant drawdowns if left unchecked.

Protect yourself using alerts – I use SharePad to keep
me abreast of price movements.

If a stock is suddenly falling, you should not be praying it
stops. You should be jumping out!

When the markets are so volatile stop losses should be used
– and keep them tight. By doing so you can protect against downside volatility.

Nothing is worse than seeing a healthy 20% gain turn into a
losing trade.

Monitor the price action.

Trade small enough to not hurt deeply but big enough for
gains to be worthwhile

Paper trading is pointless. Everyone can make money trading
a demo account. It is easy – just cut the losers and run the winners! How hard
can it be?

But demo trading is theoretical. And that’s the problem with
theory.

In theory, there is no difference between theory and
practice. But in practice – there is.

How many online poker players go “all in” when they’re
playing for smalls? And how many show the same gumption when the stakes are
higher? Exactly.

Demo trading does not work. It is pointless, and a waste of
time. I would only ever to suggest to demo trade if you literally have no idea
how to work a platform or to watch stocks.

If you want to trade – you need to be willing to get hurt.
Nobody is stepping into the boxing ring thinking they are not going to get
punched.

They just think they will be the one hitting hardest.

Trade the market, and not your money. Do not trade your
P&L.

Trade small enough to protect your account.

But trade big enough for it to mean something.

Stop losses should only ever be changed to reduce risk

Risk management is the be all and end all in trading. You are
not a trader – you are a money manager.

The three most dangerous words in trading are these: just
this once.

Losing traders say these words before they move their stops
and increase risk. The words serve as a justification for the damage they are
about to inflict on themselves.

When the single piece of feedback the market is giving you
is that the price is going against you – why would you now give that stock the
opportunity to hurt you even more?

You would not invite a burglar into your home. But that is
exactly what you are doing when you widen your stop.

The danger is not that it hurts you but that the stock
recovers and shows you a profit.

Now you have a physical proof that you were right! And guess
what happens next time you are tempted to move your stop “just this once”? You
remember the time that it rewarded you.

Understand that you are the biggest risk in trading.

The human element of trading is the biggest risk to your
future profits.

Serious damage can be done.

Stop losses should never be used to increase risk.

Stop losses should only ever be used to decrease
risk.

There is only the present

The past should be chronicled in your journal. The future is
yet to come. Your focus should be now.

Wishful thinking is a plague on every trader who is not
strong enough to banish these thoughts and control their emotions.

Traders beat themselves up thinking “If only I had bought
here”, or the classic “I would now have [insert amount] if I had not sold”.

What is the point? Where is the utility in those thoughts?
How are they helping you?

Indecision and regret will wreak havoc on your psychology if
you let it. The past has happened and can be learned from, and the future can
be prepared for.

All of that learning and preparation can only be done right
now.

There is only the present.

Lose your opinion and not your money

Many traders want to be right so badly they are willing to
put themselves at risk to prove it.

They will average down, or move their stop, and look for any
positives to fulfil their confirmation bias.

But opinions are expensive. It is far cheaper to admit you
were wrong and cut your losses than it is to prove yourself correct.

Is your opinion worth going broke over? Strong opinions do
not correlate with trading success.

The best traders are able to chop and change their opinion
at will – or even better have no opinion at all.

They trade what they see. They do not need to know, and they
do not need to care.

They value their money more than their opinion. Stay humble,
or the market will humble you.

So lose your opinion – not your money.

Rules are there to be broken

This sounds contradictory but it is true.

The beauty of the market is that the market never remains
the same. It changes and you must change with it.

Those who fail to adapt are outcompeted into the annals of
history.

Both skill and experience are required to know when to break
the rules and to know when the market has changed.

Rules are there to keep traders from blowing their accounts.

But rules are also there to be broken.

Author
Michael Taylor’s website www.shiftingshares.com contains a number of tutorials
on how to trade and invest as well as his free book – ‘How to Make Six Figures
in Stocks’.

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Daily Financial News

Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Financial News

Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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