You could be forgiven for thinking that the last few economic/financial “crises” haven’t felt very crisis-like. The dreaded sequester came and went without causing so much as a hiccup, and even the Italian election fiasco proved insufficient for more than a minor stumble in the market’s trajectory. But Europe seems intent on maintaining their new annual tradition of stirring up investor anxiety every spring. Enter: Cyprus.
Cyprus may be bigger than a molehill, but not by much. The fact that this much digital ink is being spilled worrying about a country with a GDP the size of mid-sized US city shows just how far we have to reach to find something dire to talk about these days. The country’s entire economy is a rounding error compared to the US federal budget…
Nevertheless, the airwaves are filled with concern that this could spark contagion, reignite the European debt crisis, and so on and so forth. Next verse, same as the first. At the end of the day, Cyprus matters precisely as much as people believe it matters, regardless of how much we think it ought to. And that means the possibility of choppy markets that have been the bane of many CTAs over the last several years.
But amidst the noise, we were pleased to see someone else who shared our frame of mind on such matters:
If you’re a trend follower like me, well this is one of those times when you need to be all over your risk management, because events like this have a habit of reversing or rapidly accelerating existing trends, so you need to stay alert for stops, and let your winners run until you get your exit. Stay focused. Despite the drama, this market is still in a solid uptrend.
Don’t expect this to die down quickly either. Right now the market doesn’t like this. If the vote doesn’t pass it will be a relief, but then that will put the entire aid package in jeopardy and then we’ll be back to the whole news cycle of waiting to hear it’s solved before we can move on. The media loves that stuff. Don’t be a slave to it.
The fact is, you have no edge trading off of news from Cyprus. You only have your system, your strategy, your process, your discipline. Stick with it. Follow whatever it gives you. Ignore the noise. Don’t watch TV. Watch price.
Sound advice in our book. Whatever comes of Cyprus, some prognosticators will be correct and some will be incorrect. But the traders with a sound system and solid risk management will be ready to capture a big trend if it arrives, or cut losses short if it doesn’t. Whether Cyprus causes just another ripple in the ocean or the tidal wave that the bears have been predicting for years – we’ll be glad we have our seat belt fastened.