Forex Trading News

Top Trading Lessons: Don’t Fight the Tape and Don’t Fight the Fed

Top Trading Opportunities in 2021

Top Trading Opportunities in 2021

Recommended by Daniel Moss

Get Your Free Top Trading Opportunities Forecast

Get My Guide

2020 proved once again that you should always follow two of the commandments laid out by Wall Street legend Marty Zweig in his 1986 book titled “Winning on Wall Street”: don’t fight the tape and definitely don’t attempt to fight the Fed. With markets in free-fall during the coronavirus crash in March, the Federal Reserve valiantly stepped in to stop the bleeding. The central bank rapidly cut interest rates, introduced a slew of lending facilities and implemented an open-ended Quantitative Easing program to stabilize financial conditions.

This sent equity markets soaring, with all three US benchmark indices surging to set fresh record highs this year. However, the remarkable rise in asset prices hardly makes sense when you consider that US GDP registered a record contraction of 31.4% in the second quarter of 2020 and the unemployment rate surged to a high of 14.7%.

Nevertheless, market participants continued to pile into risk assets, dismissing the notable deterioration in economic fundamentals in favour of the liquidity-rich backdrop provided by the Fed. As Zweig says, “the monetary climate – primarily the trend in interest rates and Federal Reserve policy – is the dominant factor in determining the stock market’s major direction”. Clearly, this adage continues to hold weight and should serve as a cornerstone for investors when positioning their portfolios.

Top Trading Lessons

Top Trading Lessons

Recommended by Daniel Moss

Top Trading Lessons

Get My Guide

Federal Reserve Balance Sheet – Total Assets vs. S&P 500 Index

Fed balance sheet vs SP500

— Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

Related posts

USD/MXN Forecast: Bearish Case is Weakening as Peso Strength Might Become an Issue

admin

Australian Dollar Forecast: AUD/USD Eyes Inflation, Risk Trends

admin

US Dollar Up as Wage Inflation, Biden Stimulus Pledge Drive Fed Outlook

admin

Leave a Comment