Why market positioning is a key ingredient to buying and selling efficiency

The magnitude of the market response to a repricing in expectations is usually pushed by positioning.

Say we’re in threat on, so threat property typically rally collectively like equities, commodities, commodity currencies and so forth.

The magnitude of the strikes in every market is set by positioning.

If a kind of markets is as an instance web quick, there’s rather more room to the upside.

Due to this fact, to get the massive strikes it is best to discover the markets the place a change in expectations can yield essentially the most after which await the catalyst to set off the repricing.

Latest examples embrace the aggressive inventory market selloff when everybody was bullish due to higher development expectations and we received the catalysts that triggered the expansion fears or the US Greenback selloff when positioning grew to become overstretched on the lengthy aspect (with information covers praising the dollar’s energy) and we received the commerce wars triggering a repricing in charge cuts expectations on the extra dovish aspect.

When market positioning is overstretched to at least one aspect, reactions to new data are typically extra exaggerated. If new information contradicts the consensus, merchants are compelled to shortly exit trades to chop losses or take income off the desk. This response can then be amplified by algos and so forth and given using leverage, it could result in massive and quick strikes.

That is why as a dealer, it is best to all the time be cautious of positioning as a result of it could both wipe out most of your positive aspects when situations change or give you a terrific alternative to experience the repricing in expectations.

This text was written by Giuseppe Dellamotta at www.ubaidahsan.com.



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