As we enter the end of Q1 2008, the rumours of a coming recession are heating up, the Big Squeeze / Credit Crunch.. what will be next
So with all the bad news providing an element of fear amongst the general public, and “unexpected” losses appearing out of the blue.
So what will it be like trading in this environment?
Well no one knows for certain, and that leads to a general view that things will be more volatile, many people will be thinking defensively, but that also leads to others trying to take contrarian views to get larger gains.
Cost of Funding / Leverage?
In volatile markets, the need for greater resources to handle short term movements, margin calls, and cash needs is even greater. Couple this with good risk management and clear strategies.
If you want real world examples where this broke down look at Northern Rock (their funding model failed, and then all their leverage fell through), and SocGen’s “rogue trader”.. is really an example of risk controls failing at a catastrophic level.
Short Term / Long Term?
If you are a short term trader.. then you stay watching the news, markets and short term indicators, if you’re in it on fundamentals for the long term, then now is a good time to really think about what you know and what you know you don’t know.
Logic / Not Emotion..
And as one head of trading said the other week – “I want you all to be a bit more Vulcan.. that’s right.. I want a 100 Mr Spocks” – in short now is the time to be really on the ball, and then you can do well, but you have to be using your head. Many will be losing their shirts and as our favourite mentor says.. “Are you the rabbit?”