Dear Reader,
Nobody is debating if the U.S. will be in a recession this year. Instead, when and how deep will be the topic of discussions.
Former Federal Reserve Chair, Alan Greenspan, said this week that a US recession is the “most likely outcome” as the central bank tightens monetary policy in an attempt to further curb inflation.
Just as the experts were wrong about inflation being “transitory,” I’m not holding my breath to find out if this year’s recession is mild or deeply impactful because in the end we simply do not know for certain.
So, while fed chair Powell is committed to reducing inflation at all costs, while Alan Greenspan is convinced a recession is imminent and IMF chief, Kristalina Georgieva, announced one-third of the world is heading towards recession, I plan to keeping a clear mind about how I’ll be making money this year.
I know it’s easy to get emotionally wrapped around media headlines, but let me tell you why success will come from a more stoic, rules-based trading approach this year.
Grim Reapers of the Economy
Bank analysts, and Chairs for the Federal Reserve and IMF seem to be this year’s economic grim reaper announcers.
Analysts have estimated S&P 500 earnings per share will remain flat this year, which will result in a decline in the stock market over the next six months, and I think we all know what that looks like from the first six months of last year.
And our own Federal Reserve chair has two things to say about curbing inflation – more rate hikes are yet to come and we shouldn’t expect any interest rate reductions this year.
The ball is in motion and we know how Fed action will impact businesses… it’s a snowball effect – when borrowing becomes harder, companies tighten their belts and sales and growth suffer… so enters the unemployment spike.
Powell is committed to one thing – lowering inflation; and economies around the globe will be impacted.
If high rates and inflation were limited to the U.S. there might be less impact globally, but the world’s second largest economy is experiencing other economic influences besides inflation – covid-19 lock downs.
Only recently China’s government has begun to move away from a zero Covid policy, and the number of cases have already begun to increase, which could mean future lock downs, adding more strain to the already dire economic conditions.
So with uncertainty at home and abroad, let’s focus on what we can control – profiting with rules-based trading.
Profiting By Sticking by Your Rules
The human brain is hard-wired to find patterns. After all, we’re creatures of habit and find ourselves committed to daily life routines.
It’s probably why I’m so devoted to following rules-based trading approaches. Not to mention I had my head handed to me on a platter back in the ’80’s because of emotional trading.
After taking time off to regroup in my “younger” years, I realized that success can come by staying true to a trading game plan. In the end, it’s a matter of letting the numbers play out – meaning more winners than losers or more overall gains than losses as you remain consistent in trading methods.
Once you’ve back tested a trading plan and find it works, you can apply those rules forward and you’ll be surprised how the emotions seem to simply fade away.
So, no matter the trading strategy, I will continue to acknowledge what is happening in the world around me, but I will remain stoic in my trading.
It’s also the best way to handle losses, which will inevitably occur. If you have a win rate of 90 percent, then you know that 10 out of 100 trades will be losers.
By diligently playing by your rules, however, it’s a lot easier to move on from a losing trade and keeping focused on the bigger picture – total gains, not just a single trade’s profit or loss.
Abiding by rules is simply a matter of conditioning ourselves.
I’m here to help you get conditioned to handling both winning and losing trades.
So be sure to put it down on your calendar and join me in the discussions each Monday through Wednesday at 12:00 p.m. sharp.
Tom Gentile
America’s #1 Pattern Trader
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