A Question of Focus

I am still long on the Nifty and will cut my long positions and go short today if the Nifty falls below 4639. Hopefully that will not happen and we will see the Nifty continue it rally.

If one were to listen to the media it would be impossible to take any action in the market. Depending on where you choose to focus, your conclusions on the market could change. If, for e.g. you focus on the US data that has been coming out in recent times, then it does look like the unprecedented stimulus is finally yielding some positive result and the numbers emerging out of the US are indicating that the economy is showing some signs of traction. If you focus on Europe then you could possibly end up concluding that the macro risks are simply too high to think of remaining long equities.

The question is how does one choose what to focus on? Ideally everybody should focus on all the issues and then objectively and rationally decide that one of them is more likely than the other. Unfortunately, my guess is that most people resolve this conflict by choosing to focus on data that tends to support their inherent beliefs and actively avoid even considering the other. Thus an inherently bullish person will actively ignore all information that points towards a bearish conclusion and focus exclusively on positive data and vice versa. This is what, I think, makes it impossible for all but a handful of exceptional traders to change their views on the markets.

A system trader, like me, unfortunately ignores all data. He looks at the market only through the prism of his buy/sell rules. So when I get bullish, it is only because the prism presents a bullish picture. If I changed the prism of buy/sell rules then my opinion and consequently the trade I put on will change. In a way, it is a good thing because this ignores all data and consequently ignores a lot of noise out there in the media. But this is a very robotic/mechanical way of looking at the markets and in some way removes all fun, romance and excitement out of trading! That is the price one has to be willing to pay in order to be successful as a system trader. For most people that is too heavy a price to pay because a lot of them are into trading precisely for the fun and excitement!

After making you endure this note, I will reiterate that I am long and will cut my long positions and go short if Nifty moves below 4639