Saturday, May 19, 2007

On the Value of Broad Market Vision

I had a great time on Friday talking with traders at a well-regarded financial institution. A particular treat was sharing the stage with a very successful trader who has been highlighted in financial publications. He addressed his comments to the new traders in the audience and, among other things, offered the following piece of wisdom:

"Whatever asset class you're trading, someone is trading something else against it. The more you know about that something else, the more prepared you'll be for market moves."

It was a great example of the broad market vision that I encounter among many fine traders. Like great quarterbacks, they see the entire field. Many fine trading ideas result when related markets change their relationships to one another.

If you think of it, every trade is a pairs trade. It's just that we often take the denominator--dollars--for granted. What I see in many very successful traders is that they think in denominator terms, not just numerators. They're very aware that they're trading one thing vs. another, and they frame their ideas and trades accordingly. The number of viable trade ideas rises exponentially when you think across asset classes and become free to change denominators as well as numerators.

I'll post more, with specifics, in an upcoming post.


What Makes a Professional Trader

The Myths of Trading Psychology