All the traders that were looking for a reprieve from Fed easing rates were heartbroken yesterday, as Ben Bernanke reminded everyone what his policies are all about — keeping the economy going while the employment rate remains entirely too high.
Yes, there will be a taper, he said. But as long as so many Americans are out of work the Fed will ensure that this low rate environment continues.
You could almost hear all the traders waiting for a near-term correction do a Wall Street-wide face palm.
Naturally, some will blame Bernanke and do the all-too-familiar monologue about the intrusiveness of central bankers, but others know better. Sometimes, when you trade, you’re just wrong. That is the nature of the game and no matter what, you should be prepared.
Enis Taner, a trader over at Risk Reversal said it best in a blog post about his flawed position this morning:
…I was wrong. Badly wrong. Over the past couple months, I expected a fuller correction process to play out based on a variety of factors. Whatever my reasons though, the market has proved me wrong. Even if it turns lower from here right away, my timing was wrong, so the trade was wrong. It’s that simple. What makes trading so different from other professions is that you’re wrong so often. Accepting the inevitably of being mistaken is the first mandate of risk management. The real key is keeping your losses smaller than your profits. Many of the best traders I have known have only been right 30% of the time, but were consistently profitable nonetheless…
And here’s where Taner gets down to it — the ultimate no-excuses admission:
That’s where I’ve done poorly in the past 2 weeks. My losses are larger than they should be for a losing period, and I have no one to blame for that but myself. Not evil conspirators, not central bankers, and not Mr. Market. Effective risk management is so useful precisely because it allows a trader to be successful no matter the market environment, no matter the news. I might have a view on what I think could happen, but managing the position well is much, much more important than whether that view turns out to be correct or not.
On Wall Street, being right can make you rich. But as Taner points out, there are unforeseen factors that can make a fool of you at any moment. Even the legendary Stan Druckenmiller admitted that he felt he may not be made for today’s market, and that the new order makes him “reconsider my ability to generate superior returns.”
If the most important price in the most important economy in the world is being rigged, and everything else is priced off it, what am I supposed to read into other price movements?
Doesn’t matter. As Taner writes, you have to cover yourself for the world you’re trading in. If you don’t, that’s even worse than being wrong.
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