A Worthwhile Habit

BarroMetrics Views: A Worthwhile Habit

For those of whose who were not short the CHF, say a prayer of gratitude…we were lucky…we did not join so many others in financial devastation: ‘there but  for the grace of God, go I’. For those who were long the CHF, congrats on the result.

Today, I am going to talk about a habit that has placed luck on my side…so far it has allowed me to escape the ravages of failed brokers – in some cases withdrawing my funds before the crash; in others, making a conscious decision to avoid the broker.

The story starts long before I started trading; it starts, in fact, when I was in my teens. In those days, I was an avid fan of JFK. I read that he had taken the Evelyn Woods Reading Dynamics Course and that he read a number papers to start the day. So, I took the course, (still one of the best reading courses I have ever taken), and started reading the daily papers to start my day.

Shortly after that became a habit, I read that cutting out articles of interest, and creating a scrapbook, was an ideal source of creativity. So, I added that to the habit.

Fast forward twenty years later to a course on Market Profile taught by Pete Steidlmayer. Peter taught that there were three types of fundamentals:

  1. Expected events: events that are events known and correctly anticipated by market participants. As a result, the underlying structure (which he called value) and price moved in the same direction. This results in a congestion market.
  2. Surprise events: events that happen out of the blue, ‘acts of God’ if you will e.g. Chernobyl  Here price move away from value only to return to value once the crisis is over.
  3. Unexpected events: events that are available to market participants; but these events are either ignored or incorrectly interpreted. Value moves away from price. When the events are recognised for their true impact, price moves to value, usually in a dramatic manner.

I added the lesson to my morning regime. So, the habit now is:

  • to read news events (this includes certain sites and email updates),
  • enter or snag a summary into Evernote (rather than cut and paste into a scrapbook), and
  • for each item of interest:
    1. rate the event as either expected, surprise or unexpected;
    2. ask what is the probable impact on currencies, gold, stock indices and interest rates; and
    3. assess the probability of the event’s occurrence.

      The process may sound like a lot of work, but so far, at least, it has kept me out of trouble. Tomorrow, I’ll show the process in action with the Swiss National Bank announcement.