asset classes respond in many different ways to various fundamental
developments. You can have short-term Treasury Notes selling-off because the
central bank is tightening monetary policy.
extension, an FX pair can be in an uptrend because the central bank of the
currency that is appreciating is raising interest rates while the central bank
of the currency that is depreciating is cutting interest rates.
You can also
have different equity sectors responding in different ways to the economic
cycle with cyclical stocks falling during hard times and defensive stocks, on
the other hand, rising.
When you build
your trading idea you should find a market where your idea can be expressed in
the best possible way giving you good asymmetric bets. This process will also
keep you disciplined as you will look only for the highest conviction trades
and refrain from taking trades just out of boredom. Remember that your job is
not to trade but to make money.
Let’s see an
example. Imagine you have two central banks beginning to tighten their monetary
policy and the risk sentiment picture is murky. Given that, you can have the
corresponding FX pair just ranging and not giving you any high probability
What you can do though is to trade the short-term treasury notes as a
tighter policy will cause a sell-off in those securities. In this way you reduce
your risk and increase your chances of success at the same time.
With more experience
you’ll start to notice that when you have a high conviction in your trade,
because you clearly see the reasons for taking a position, your psychological
pressure will be much lower compared to the times when you force trades trying
to outsmart the market. As the saying goes “when in doubt, stay out”.