“Those who are preoccupied with ‘making a statement’ usually don’t have any statements worth making.” 

– Thomas Sowell

Howdy, gang!  Looks like it’s time for another dose of “Know Good Things” and I hope that my modest contributions to this amazing trading community have been of some help and assistance!  Trading and investing (on your own) is one of the most intriguing activities any of us can become involved in and I definitely know (from personal experience) that it can be extremely difficult without having a place to turn to during times of difficulty…and frustration.  I truly hope that everyone is taking advantage of the stellar tools available on Tackle Trading.  Doing this by yourself is a daunting task and you’re bound to make some mistakes along the way.  Being able to learn from the experience of people who have “been there” and “done that” really does make all the difference in the world so I urge you to pay attention to your mistakes AND your successes in order to really learn from them.  Never allow yourself to get too low during your times of struggle, nor too high during your times of success.  Balance, it would seem, is an essential ingredient of the recipe of success.

Recently, we have made a lot of progress in our efforts to become more literate with our abilities of assessing the markets in conjunction with the economy.  Several weeks ago, I started down a different path regarding this blog by focusing on a more specific aspect of macroeconomic analysis.  We discussed the three classifications of indicators that are given to us on a weekly, monthly, and quarterly basis and even used some examples of the past to help further our understanding.  Leading, lagging, and coincident indicators are the things we have in front of us, while learning “which is which” comes with time and practice.

Then we attempted to peg those indicators/reports with more specificity by discussing the type of reaction they usually have on the markets.  Certain reports usually produce certain reactions and in various directions of the market.  Procyclic, countercyclic and (the new one) acyclic labels are given to reports in order to help us understand the likely relationship they have with the markets from a directional standpoint.  While there is no way for us to ever be 100% certain that a particular report will absolutely yield a particular result or reaction, there is a way for us to put ourselves in a position that is favorable from an odds-based stand point.  That is, for the most part, one of the biggest factors of successful trading when it’s all said and done!  We’ll never be able to say with absolute certainty that a particular setup will produce a definite movement, but we can get to a point where we can say that a particular setup will likely produce an expected movement.  Being on the right side of probability is a business plan that seems to benefit several types of businesses in the world today.  Our business of trading should be no exception.

I hope it’s pretty easy to understand what procyclic (moves in the same direction as the economic report) and countercyclic (moves in the opposite direction of the economic report) means because it’s merely a two-dimensional relationship.  It’s either going to move up, down, or sideways…right?  Acyclic indicators don’t change the basic facts of anything we’ve already discussed and, to be honest, they don’t really have much a place in our assessments.  An acyclic indicator is essentially something that acts as an outlier.  It doesn’t have any rules to follow, has no relationship with anything in particular, and is usually used (as an official label) whenever something doesn’t make sense or add up!  An acyclic indicator is an indicator that has no rules and is sometimes not even in the economic field that we’re used to!  Take, for instance, an embargo.  While we’re all pretty certain that an embargo (refusal to allow trade with another country) will likely produce an obvious impact in the financial markets, we’re not so certain as to what kind of reaction it will yield.  Another obvious aspect of this is that there is no kind of repetition involved like there are with the usual economic reports (released on the same day every month).  These types of reports with an acyclic label affixed to them are spontaneous.  War could be another acyclic event that is likely to have an effect on the markets.  Some have even argued that a particular team winning the Super Bowl can have an impact on the markets!  Yes, that would definitely be an acyclic event and probably one that you can feel free not to worry about…unless the Indianapolis Colts are the team winning the Super Bowl, of course.

To be honest, I’d be surprised if anyone reading this blog would ever have to worry about an acyclic event in the manner that requires preparation and analysis.  When they happen…they happen!  Most people just shake them off (after noticing them and giving an initial thought to them) and then proceed with their business as usual.

In one of the coming weeks, I’m going to try and create a list of reports with their affixed classifications.  It’s a time consuming task, but something that I think I can at least give some effort towards.  No promises, but I’ll try and see what I can do.  I think having a list of usual macroeconomic reports with their description (ex: leading/procyclic) could be useful.  In the meantime, keep working towards your trading goals and definitely keep putting the proper amount of time into studying.  It’s worth it.

Be good.  Do good.  Know good.

Kleiny (@KnowGoodThings)

Columbus, Indiana