Just The Facts, Ma’am. All We Want Are The Facts

In Blog by Michael Arnold

Detective-300x200Trading is hard enough, but when you trade off of news, information and “tips” that are iffy at best and flat out wrong at worst, it becomes darn near impossible. This is why Path Trading Partners trades price action and only price action. Think about it; what can a trader know with close to 100% certainty? Price. This morning, the Bureau of Labor Statistics released the market-moving non-farm payrolls report. In the minutes prior to the release, the June E-Mini S&P© futures contract was trading at 2042.50.

The release happened at 7:30 AM CDT and the price immediately jumped to 2044.50. 20 minutes later it was trading at 2041.50. Was it because the number was better than expected? Was it the wage component? Was it the 5% unemployment rate combined with better labor participation numbers? And does this keep the FOMC out of the picture in terms of an April rate hike? Do we have Janet Yellen’s phone number, so we can call and ask her? There is really no way to know with certainty. The only thing we can know that is 100% fact is, that price went up $2, then fell $3.

On CNBC yesterday, one of their contributors uttered the following in reference to the equity markets: “April typically tends to be kind of a weak month, right? You can go back 2, 3, 4 years you can see always what happens in April…” Looking back on the S&P 500 returns over the last 6 years and you get the following*:

 

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These are not the strongest returns in history, but clearly saying “April typically tends to be kind of a weak month” when 5 of the last 6 Aprils ended with a positive return is a bit spurious and using the word “always” is borderline irresponsible in trading.

Adopting a price-action based method allows a trader to ignore the noise and outright falsehoods that are out there. If you can’t measure your inputs, you can’t manage your results. How can you measure things that you can’t verify are real?

Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results