V.18:3 (56-61):The Highs And Lows Of Trading by Edward Robert Florez

V.18:3 (56-61):The Highs And Lows Of Trading by Edward Robert Florez
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The Highs And Lows Of Trading by Edward Robert Florez

Hereís a war story that illustrates some mistakes that all traders have made at one time or another ó and should keep in mind..

The best-laid plans and analysis can become catastrophically skewed when conditions change and you do not lessen your risk. Back in 1980, during President Jimmy Carterís last year in office, speculation was rampant that interest rates would have to go down in order to benefit the Presidentís reelection campaign. By then, interest rates had already had a dramatic and unprecedented rise.

A year or so before the November 1980 election,in an event referred to as "the Saturday night massacre," Federal Reserve chairman Paul Volcker raised the discount rate by two percent points over a weekend. He also ordered massive intervention in the foreign exchange market in support of the dollar, and effectively adopted monetarism as policy by which the Fed would manage the money supply and hence the economy. This sent shock waves through the international monetary system and ushered in a new era of trading. It is the foundation upon which a great deal of todayís speculative trading is still focused.

As it turned out, interest rates didnít top out for another year and a half. But by January 1980, interest rates were high enough to convince a number of traders that they were bound to change direction.

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