“Greed is one of the cardinal sins in trading.”
– Maite Krausse
Janet Yellen assumed office on February 3, 2014, as chairwoman
of the Federal Reserve (the central bank of the US). Going back to the topic
above, this isn’t to say that Janet will take control of your portfolio and
ruin it. However, the Fed can make decisions and take actions that can have
negative (or positive) effects on your investment. The Fed’s assets are worth
trillions of dollar. In my opinion, the office of chair of the Fed is more
important than the office of MD of the IMF (the International Monetary Fund),
and that’s why decisive actions taken by the Fed have far-reaching effects on
the markets – far more than the decisive actions taken by the IMF.
The Chair of the Fed is more powerful than the MD of the
IMF. Janet is the main decision maker, for the Fed can’t take a major action
without her approval. One of such major decisions was pumping dollars into the
American economy (quantitative easing), which was going on for several years.
This was done to help the economy grow, though the growth was slower than
expected. The Fed regulates banks, but
most of their top executives are academics rather than bankers. The Fed is
independent. Even the US congress cannot control it because their independence
is respected, just like other rights spelt by the U.S. Constitution. Unlike
some Federal officials and secretaries, the Fed officials aren’t told what they
do; not even President will tell them what they do. The Fed decides to spend money according
their powers. They keep interest rates minimal in order to encourage loans,
which in turn may provide stimulus for an improved economy. Most speculators
are affected by the Fed decisions – whether they know it or not.
As far as inflation, unemployment, banks and other important
issues are concerned, The Fed can take any actions. Janet can approve or
disapprove bank mergers. Apart from banks, she can even regulate financial
institutions (under Dodd-Frank). She’s even been given powers to regulate big
insurance companies. One thing, nevertheless, must be noted. The Fed isn’t
infallible. They can make decisions which can have adverse effects on the US
economy and the market. Some of their actions, like quantitative easing, have
not brought the ideal results. It’s possible that things can even turn out
better without the Fed, but they’ll continue taking actions while hoping that
things would become better.
The decisions taken by Janet can have serious effect on your
investment, whether you’re an American or not. Those decisions can ruin your
portfolio or help it to grow. Recently, the Greenback has been very strong, and
the strength has been ongoing for several months, making that currency the
strongest around. As a result of this, Gold, Silver, Euro, Aussie, and others
have been under serious bearish pressure. The protracted strength in the
Greenback has caused various protracted effects in the Forex markets: USD pairs
have been strong or weak, depending on whether the USD is the base or counter
currency of each pair.
Janet Yellen Can
Make Your Portfolio Grow
Let’s take USDJPY for example. Since July 2014 until the
time of writing this piece (December 2014), the pair has gone upwards by over
1800 pips, making it one of the strongest existing trends in the Forex markets.
The simple reason for this is the great strength in the USD and great weakness
in the JPY. This great trend has made trend followers realized lots of profits,
while those who‘ve gone against it have been sliced up.
If a good trader is caught in a wrong side of a great trend
like this, she/he quickly truncates his position. If caught in the right
direction, a good trader would also capitalize on the trend by riding it. If
caught in a wrong direction, a bad trader would continue to run her/his loss
until a margin call is received. After you bet all your account in one single
trade and things go contrary to your expectations, you may want to smooth the
adverse position. As Dr. Peter Putz pupts it, after all, a miserable end is
preferable to misery without end. If a
bad trader is caught in the right direction, she/he will quickly exit the
position with a small profit, based on the fear that the trend would soon
reverse.
Janet Yellen isn’t, and can’t be held responsible for the
effects her decisions have on your portfolios. You make your trading decisions
and bear responsibility for them, whether the outcome is positive of negative.
The trend that has brought big losses to some people has also brought big
profits to some people. Such is trading and such is life.
It doesn’t matter whether Yellen was dovish or hawkish. Even
a wonderful trading idea can become a flop without you knowing why, but
determined traders can make money in the markets no matter the actions taken by
the Fed. In the current market conditions (and the future market conditions),
you can make it.
We open trades and then allow the forces in the markets to
work in our favor. We should continue to
stick to our good strategies in spite of occasional losing streaks, unexpected
events, crashes and good signals. The good strategies would eventually bring
profits.
Conclusion: No
matter how complicated you make your chart analysis, it doesn’t translate to
consistently huge profits. When you forfeit a fortune in the markets, you’ll
either swear not to trade again or become more determined to do all you can to
become successful in this business. Losses are good in that they teach you
valuable lessons that make you become a better speculator.
This piece is ended by the quote below:
“Only fools think they know it all. Investing is a
lifelong education and its teacher is loss. I will continue to have losses and
make mistakes, but I can continue to increase my success rate, and most
important, decrease the time it takes for me to realize I made a wrong
decision.” – Ian
Cassel
