Yogesh Chandarana talks with hedge fund manager and trading guru Lex van Dam about competing with computer algorithms, and what to expect from CityA.M.’s 2013 Active Trader Conference
How has the trading world changed since you spoke at last year’s City A.M. Active Trader Conference?
Last year, the theme was risk-on risk-off. Now markets seem more fundamentally driven. This is a good thing since traders will be rewarded for making the right decisions.
But some things haven’t changed. The stability of financial institutions is still a concern – as highlighted by recent events in Cyprus – which also raises the issue of counterparty risk. Against that background, political risk still lingers too.
How should traders manage these risks?
Traders need to be aware of them, and understand how they can move asset prices. The underlying current of the market can change quickly. Sometimes it is about momentum, then the focus moves on to carry, then to risk-on risk-off, and then it can return to fundamentals.
Top traders are adaptable: they learn how to recognise these changing themes and position themselves accordingly. For example, if the value of the dollar increases, is it because of risk-off, or is it because the US economy is improving? A lot of this comes with experience, but it can also come from being taught properly about what to look for.
Part of managing risk is psychological. We can all be prone to irrationality, and go through difficult times, leading to mistakes. But you need to learn how to manage your emotions so you don’t lose your sanity. It is a mental game. So traders must be prepared to continuously develop themselves and learn. Practice makes perfect, but bad habits must be eradicated.
Is it currently better to focus on technicals or fundamentals?