Hi Folks,

Flash Rabbit here at the tail end of the week (I’m sorry, I couldn’t resist). In my earlier blog I started to outline my ‘micro-macro’ approach to trading, and I thought I’d continue on that theme today. Skip down to the bottom though if you just want to see how my trading has gone (not well).

Gathering The Information
To trade the ‘bigger picture’ you need information. A lot of it. Information comes from all sorts of sources: obviously from the price movements in the market, but also from chatter and gossip, blogs like this, company websites and news sources. There are many different types of information, which can be divided basically into two categories – data (facts) and interpretation (opinion).

You also always need to decide how authoritative and trustworthy the information source is. Commentators (and company spin doctors) like to try to pass off their opinions as facts. That’s because they’re in the business of persuasion.

Given some of the choice quotes from some of our friends in corporate banking this year, you might be forgiven for not trusting anything you hear, see or read. And that’s a good attitude. You have to test out your view, and be prepared for what might happen if you’re wrong.

Adding In The Charts
Most of the data we get is retrospective; whether its a share price droping, a set of company results or the unemployment figures it’s all about what has just happened,. And because of that the best you can do is puzzle out what you think might happen next. So, I do try to gather together enough data and opinion to make an informed decision, but I use a bit of Technical Analysis too.

I’m at my weakest when it comes to the Technical Analysis stuff but I always check the charts before I place a trade. This means stepping back and looking at the hourly, daily, weekly and monthly chart of any instrument I’m trading. I do this both to look for medium and longer term trends and to assess where to move my stop loss to so as to avoid the trade being closed out before it’s had a chance.

When trading I also need to decide whether it’s a quick in and out trade (not really my style), or one I’m trying to play for longer (which I prefer). If it’s the former then I find short term patterns on a chart can be useful for working out where to enter and exit.

From the combination of data, charts and analysis I build up my trading view. Then I see if I can test my view by trying to think about the bigger picture – the long term trends in business, technology and the economy. Trying to catch the emergent ideas and trends is one of the crucial skills that a ‘micro-macro’ trader like me is trying to learn.

Risk And Routine
In my daily routine, depending on what else is going on, I decide first of all if I’m going to have an ‘active’ or a ‘passive’ trading day. I think about the risks involved in trading, how much I can afford to put into play, how much time I can devote to trading. This week, for example, I’’ve stayed cautious, simply ‘cos I’m busy with other stuff.

If it’s an active day first thing I do is check my positions and decide whether to cut any trades that looks wobbly. Then I check the financial press – typically the FT, Market Watch, and the Bloomberg headlines. Then I go and visit some of my favourite bloggers. And then I begin to think about what might be going on and how to play it.

I quite like information overload – typically on an ‘active’ trading day I’ll be trading on two screens and browsing news and blogs on a third, and all of this information somehow comes together as my view. (Infact I started bogging as a way of thinking aloud about my approach, and that’s what I’ll be trying to do in these posts). I think of trading like sailing a little boat on a foggy sea of information – you need charts, you need to take precautions, you need to pay attention to the weather forecast, but you also need to know where you want to go with your trading.

This Week’s Trading
Every mistake you make is good, if you can do the learning from it!I was pretty cross when I left a substantial four figure profit on my screen on Monday lunchtime and came back home to find it cut by two thirds. I shouldn’t have been so blindly optimistic. I could have pocketed the cash and had a relaxed week.

This week, mostly because I’ve been ‘passively’ trading and been away from the screen in a very active market, I’ve made a lot of mistakes. I got the call on EUR/JPY hopelessly wrong (see near the bottom of the previous blog). The only thing that has saved me this week has been a longstanding GBP/USD short position from $1.58, which is rolling away nicely. I made a bit of money shorting gold from $729 but that’s gone too now. I went short on the indices rather too late … then had them taken out when the market went for a massive adrenaline rush while I was having dinner. For now I’m still ‘passively’ trading – I feel no need to try to catch every twist and turn in this market. I prefer caution, and I’m not adding any more. It’s too risky. Let’s see if this latest rally has any legs.