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Al’s Trade Report for the week
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Risk aversion creeping back in

This week has seen the the first real move toward risk aversion across commodities and stock markets so far this year.  A couple of significant news items contributed to the general undercurrent of fear. 

The World Economic forum issued their latest missive on the state of the recovery and the conclusion was that there remains a real and definite threat of a second stage to the credit crunch with a real risk of collapse in over-heated markets including commodities and ‘emerging economies’ – the basis is that the rally in many markets since last March has been driven by liquidity and speculative money flows rather than as a reflection of genuine economic activity and recovery.  This situation could well continue for a number of months – and in my view will likely need some kind of (possibly small) catalysing event.  There are many foreseeable causes and top of the list would be a Sovereign debt default.

Interestingly, China raised bank reserve requirements this week which also spooked markets and ties in with the idea that any kind of reduction in availability of credit there could have a significant knock on effect worldwide.

Trading wise it has been a tough start to the year and I have not been really convinced by many real opportunities yet.  I believe there is yet to be a real sell off in the portfolio of commodities and FX markets in the STP portfolio so have been treading lightly in terms of open positions.  This can seem to be a bit of a grind and can be hard on the trading nerves – but this is a long game and the aim is to continually manage risk to hang in there for the good trading opportunities when they come along.  So cutting losses short and tightening up stops to limit downside is key to keeping focussed on the next opportunity. 

We have taken several smallish losses in the first couple of weeks of the year but these are still ‘good trades’ in that they are controlled risk and well managed, winning trades are certainly sweeter but the key to keeping composure is to remember that the only ‘bad trades’ are those which are made outside of the rules and risk parameters you set yourself.  I know there are some great trades just around the corner and thats something that really keeps the focus on the current price action and is the only way to keep that all important trading poise.
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