This Is A Trader’s Market

Market Themes

The one that has really characterized financial markets over the last couple of years, and by financial markets I mean everything from Forex and Natural Gas to Bonds and Equities, is that sure buy and holding works in certain asset classes given the bull market in equities, but even in regards to equities trading around the market had been the most profitable strategy by a large amount. Many markets like bonds which are currently dominated by Yield Chasers trade in tight ranges, and it is so much more profitable to just swing trade the range because bonds really haven`t gone anywhere for months. Any Bond Bull who didn`t take profits on positions when the 10-year yield was 2.40% is regretting that decision today, and this goes for many markets with ever contracting volatility. 

Contracting Volatility

The other trend in markets is that with contracting volatility and so many trading strategies revolving around spread trading and yield carry arbitrage trades prices move a lot less on a 23 hour basis, it boils down to fewer opportunities than before regarding the Asian markets, whereas just 4 years ago it made sense from a volatility standpoint to trade the futures markets overnight for some robust moves, it really isn`t worth one`s time these days. Basically, prices move at the European open and the US Pre-market and open, the European close, Gold and Oil close, and are dead until the equities close unless there is a big Fed day. 

Risk Aversion Strategies: Better to make less money, but have perceived lower volatility strategy on Street – becomes self-reinforcing for Industry Trend

Markets have been characterized in the low volatility environment by bot trading, i.e., the machine algos trading back and forth with each other in very, very tight price ranges. This past Wednesday and Jobs day offer some of the best trading opportunities and glimpses of what markets used to be like to trade before the Central Banks started mucking things up with five years of near zero percent liquidity, and the fact that modern finance just loves risk-free arb strategies that are facilitated if they are able to keep volatility in a tight range at low levels.