The Two-Handed Economist

Source: Dilbert

Many economists are known for making hedged statements.  Through the course of discussion they frequently use phrases such as, “On the one hand… on the other hand”. While their inability to offer up absolute declarations may bother those seeking more concrete answers, it reflects their understanding that the future is in a constant state of flux.  I’m always amazed when pundits have the gumption to make definitive statements about the market as if they know with surety what will come to pass.  Fortunately for these talking heads the public is quick to forget and easy to forgive no matter how many times they make a bad market call.

As traders we don’t have that luxury.

Like a two-handed economist we too can develop a hedged outlook.  Rather than rooting ourselves in the illusion of surety, we should embrace the uncertainty and be ever willing to adjust our outlook.  Traders should frequently use “if, then” statements.  Take the current posture of the S&P 500 Index for instance.  We have reversed into a downtrend and have recently rallied up toward potential resistance at 1300 forming a pretty clean bear retracement pattern.  The path of least resistance at this point is likely down.  To avoid developing bearish tunnel vision consider what types of “if,then” statements you could make right now.  If the market remains below 1300 and the 50 day moving average, then I will maintain my bearish disposition.  If the market consolidates at the highs and breaks back above resistance, then I will dispense with my bearish aspirations for the time being and don my bull cap.

Regardless of what comes, we must keep ourselves open to all potential scenarios.  If you’ve adopted a single handed approach to your market forecasting, I invite you to change your ways by following in the path of the two-handed economist.

For related posts, readers can check out:
Resist the Urge
An Insidious Little Phrase