Defeating the Discombobulating Dialectic: Or, Just Trade the Damn Thing! Part I.

At the AXIA trading desks.
Tuesday 19th November 2024,
Limassol, Cyprus.

“But, yeah, it was weird!”

“It felt like the markets wanted to go that way beforehand,” so continued this trader. “But these headlines were little triggers. Then everyone decided that these headlines must be moving it, and they all just jumped in! From experience, you usually look past these comments and think nothing of them. But you have to adapt…”

This highlights one of the market’s most intriguing features: its ability to observe and adapt to itself, altering the very question we’re trying to answer simply by attempting to answer it.

Here’s the chicken-and-egg problem: Would the market movements on Tuesday morning—the Bund’s rally, for instance—have occurred if the headline ‘Putin Approved Updated Nuclear Doctrine’ had emerged under different market structure and participant positioning?

Suppose the market’s positioning favoured the downside in Bund futures. In that case, how would the risk-off bid on a nuclear doctrine headline have affected the market? The headline comes out; the reaction is muted. Newswires, journalists, and the news flow don’t care—no rehashing. We move on, just as the markets did with the first update to Russia’s nuclear doctrine in September and countless other headlines over the years. No one would label such a day as ‘headline-driven,’ least of all the newswires.

But this time, it just so happens that the Bund’s structure and participants are positioned in such a away that probabilities favour the upside. And a ‘risk-off’ (danger!danger!) headline comes up and causes momentum calamity.

Reaction! News flow causing order flow. Or is it order flow causing news flow? The narrative shifts and warps. Markets are sensitive again to the Russia-Ukraine War! Or are they, really? And then the other markets react. It must be! Oh, wait—the show is over. Come Back For The End Of The World Next Tuesday. Hence, we caught a glimpse of a wily old shadow: the market’s self-fulfilling prophecy.

But these traders executed it all the same.

Spoiler first: the day went to the traders with an explicit framework—ostensibly called ‘technical trading.’ Or rather, the successful technical traders are those with an explicit framework—one that filters and shapes their understanding of market activity. And in AXIA’s case, this is strongly tied to the Market Profile and ‘market auction theory.’