Stock Market Unimpressed with Trump’s Mini Trade Deal

Donald Trump

After waiting patiently all trading day for news from the trade dispute front, holding its breath for something substantial, we at least got the minimum, but hopes were higher.

With the way that the trade dispute between China and the United States has been going, where the situation has just been getting worse with each passing month, any positive news is good news, and any agreement is a step in the right direction.

Friday was the day where some sort of agreement was at least possible, and as the hour approached, it became more and more clear that a deal of some sort was going to be announced later in the day, particularly from one of President Trump’s tweets from earlier in the day. Trump did seem to suggest that what he had for us was on the substantial side, even though it really wasn’t reasonable to expect much more than his taking the October 15 tariff increases off the table in exchange for an appropriate gesture from the Chinese.

Trump at least seemed to seek to have this announcement happen during market hours, perhaps thinking that this small agreement would propel the market further. Newsmakers generally avoid announcing either good or bad news during market hours, to avoid creating too much volatility, but it is at least refreshing that Trump doesn’t seem to care about such things and is already famous for tweeting markets into a frenzy.

Those in the know were looking for us to get just what we got and for the market to sell off at least somewhat after the news, which actually makes perfect sense. Trump may not have read it that way or perhaps he just doesn’t care that much, but there were some indications from the U.S. camp that making the announcement before the bell was the intention here.

It’s not hard to figure out why we saw the opposite, although the drop wasn’t that big and this just represented the hopers getting disappointed and pulling out. These people are traders who are looking to get the jump on the announcement should it actually be substantial, and anything beyond the minimum that we did see and that most people expected would have likely drove things higher and represented some real profit potential for them.

A move like this may seem bold or even mistaken to those who don’t understand trading that well, but buying into the upsurge that we saw and then holding on through the announcement with the intention of getting out if things didn’t work out that well was actually not that unreasonable and a pretty good strategy actually.

The key to this is to measure the risk involved, and this really wasn’t one that the risk was that high in, as opposed to some pieces of news that could really spike things down quite a bit, like some of Trump’s other announcements that were clearly unfavorable to stocks.

We knew this time that we wouldn’t be getting new tariffs though, and with Trump’s telling us that a deal was done, it came down to whether this was a small or bigger deal. A small deal, the expected one, would likely still have us booking a profit if we played this right and got in at lunch time when the excitement started to build, and then bail if the news hit and things went south. If we got a better deal, then this would add even more profit.

While market commentators were complaining about all the ups and downs lately, and this is not something that tends to make investors too happy, it sure makes traders happy and Friday provided several good opportunities. We started out bullish for the first two hours, then turned bearish for the next hour, got bullish again for the next 3, and then sold off during the last half an hour.

Friday Was a Great Day for Intra-day Trading

This was all fairly easy to pick off for a skilled trader, and on this day, it didn’t take all that much skill to spot these movements and profit from each and every one of them. Some days are better to trade the market than others and Friday was a pretty nice one indeed for those trading it on ten-minute bars.

The very best traders, the pinnacle of the profession, will use flexible charting and look to match the length of their trades with the cycles of the market, where you seek to minimize the noise and trade the signals more.

Few traders realize the benefit of such an approach and will tend to stick to a certain bar length and try to use that all the time, and while that can be profitable if used skillfully, each day is different and there are some days where you want to be either long or short all day or most of the day and other times where we see shorter cycles and need to be more nimble.

If a trader didn’t do well on an easy day such as what happened on Friday or on other days which are pretty easy to time, it is certainly time to examine how this happened and how they could have used a more flexible strategy to realize better results. If you went long all day here, you would have been up nicely, then down, then up again, then down again, and end up flat, and these moves were clearly tradable.

There are other days where the ups and downs are just noise due to their lesser magnitude, and things move up and down even tick by tick and on any time frame, and people can do well with very short time frames but there are times where this strategy is more appropriate than others. When we’re moving sideways mostly, you won’t make any money just staying in a position, but the movement on a shorter time frame may be tradeable, meaning having distinct and profitable moves that can be traded on the chart that you choose.

The fact that trends tend to behave in similar cycles is the biggest advantage a trader has, provided that they realize this and become proficient enough at taking advantage of this tendency. Friday’s charts really illustrate this and if you put up 10-minute Heikin Ashi bars this becomes immediately apparent.

There are lots of different ways to trade though, and a chart like this can look very ugly on some days, where you can endure several failed moves in a row and end up chasing things all day. How can we know which type of chart to go with though and how did we know that this was the right approach on that day?

You might have just started with 10 minutes as we did and then watched to see how this cycle played out, and in this case it played out beautifully When the first trade works, you want to assume that the cycle will continue to work unless you see a reason otherwise. What we’re really looking for here is maintaining cycles of a sufficient length to keep the outlook for more positive. No one is going to win much more than half of their trades, although if you aren’t careful you can lose more than you win which should be avoided generally.

When the path you have chosen isn’t working, this is the time to look to try something else, or often enough, just do nothing if things aren’t either volatile or predictable enough. We make money trading over time by seeking out and then exploiting advantages, but if the advantage is not there, it makes no sense just to churn trades because you just want to be in.

You don’t want to be laying low when opportunity is knocking though, and the trick here is to know when to get in and how long to stay in as well as knowing when you shouldn’t be in. It costs money to trade and you always want to make sure that you are leveraging enough of an advantage, otherwise you cannot expect to do well, because leveraging randomness or a bad decision will both punish you in the end.

Things Look Promising for Both Traders and Investors Now

Investors can make mistakes and get away with them a lot more, where if a trader is making mistakes, they will make a lot more of them due to their much greater volume of trades, and this is how traders fail and can do so in short order if they really make some big ones.

Friday therefore can be viewed as an instructional day for those looking to up their trading game and you always learn by looking back at the past and using this information to seek out better strategies and improve. Over enough time, you do get better at knowing what to do, but this does take a lot of time and is the singular most important thing that newer traders don’t get.

They may think that this is easy, and may even have booked some good returns with simulated trading, but the pressure of real money can weigh heavily if you are not accustomed to it, and it takes a whole lot of time to get good at trading itself in addition to mastering the psychological challenges.

The only real way to do this is to trade with a plan, and if you trade on the seat of your pants and don’t have years of proven success doing this, you will just end up on the seat of your pants on the ground.

As far as the impact of this trade agreement overall, it definitely is better not to have more tariffs, and while December’s is still on the table, at least October’s is off now, and Trump even got to brag that he pushed the Chinese into spending more money to avoid it. When you threaten more and get more as a result, that’s some pretty sharp negotiating and Trump may be a lot of things but he has shown that he can push his weight around and benefit.

Shorter-term traders don’t care about any of this so long as there is action, and there’s been plenty of that lately. Investors don’t care about these things, the trade deal in total in fact, or they at least shouldn’t because if you plan on holding for years, anything to do with Trump during his short tenure relative to your time horizon is just all trivia really.

Those in the middle, the position traders who hold for months on average or the swing traders who hold for days to weeks, are the ones that all the commentary about the ups and downs of the market are speaking to. This isn’t a lot of people and its actually pretty amusing that a whole industry, the financial media, spends just about all of its time catering to these traders. Lots more watch though, and mistakenly believe that this is for them.

Things do look good on that front though, and Friday’s announcement does bode well for these traders in spite of the late day selloff. These traders are looking to trade more substantial signals than this, and while the ups and downs on Friday are signals for intraday traders, this is just noise to the longer-focused ones.

If things really start going south for investors, to the point where we can say that a true long-term reversal is underway and the bears have really taken over, they will know it, and nothing that has happened during this trade dispute even comes close to qualifying, nor has other things like the worry about economic slowdown or even a recession.

We always need to match our objectives with our attention, and pay attention to only those things which may indicate a signal for us and not just more noise. Any investor who have sold their stocks this year at any point have made a clear mistake, but those who are looking to time markets more may have been in and out of the market dozens, hundreds, or even thousands of times depending on what scale they are trading on.

We have some positive momentum on the trade front right now and the expectation is that we will likely continue to move in the right direction, in spite of the challenges that remain, which are substantial.

John Miller

Editor, MarketReview.com

John’s sensible advice on all matters related to personal finance will have you examining your own life and tweaking it to achieve your financial goals better.

Contact John: john@marketreview.com

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