Now that I have your attention, let’s look at the world of trading on social media. For as much as anything, this is a world of people just trying to get your attention rather than passing on useful information.
If your Twitter ‘For You’ feed is anything like mine, for the past 6-8 months it has been filled with predictions of significant market falls. Every piece of economic or company bad news is about to trigger a big selloff. While, every equity market rally just makes the impending crash nearer and deeper.
In the volatility space, while realised volatility for the S&P500 has been generally falling for months, we mostly hear predictions of impending volatility spikes among commentators.
Below is a chart of the S&P500 with 14 day Historical (realised) Volatility as the blue line. We can see that realised 14 day volatility has fallen from around 30% to 10% over the past nine months. Yet I have seen almost no accounts talk about the possibility of volatility falling during that period.
Source: Barchart.com
Fear Sells
The reality is that most people in the financial social media world are only interested in clicks. They are just trying to build followers. And in this regard, fear sells. They want your attention and suggesting that equities could grind higher with lower volatility just isn’t sexy enough; it will not bring them followers.
In today’s world you build followers with predictions of crashes and doom. In a world where an increasing number of people have distrust of authorities and institutions, there is fame and money to be made by suggesting markets are always on the verge of collapse.
Just like the pedlars of conspiracy theories, these accounts never admit they are wrong. They may push the timeline of the crash back further; they might blame institutions (“they”) for rigging the markets.
Not only do they never admit they are wrong, they also rarely if ever indicate what it would take for them to change their opinion or know they are wrong.
Real traders always include the possibility of being wrong in their analysis. They will have a point (price) where they will be forced to admit they are wrong and exit the trade (perhaps a stop loss order).
Any forecast that doesn’t include the possibility of being wrong or how being wrong will be judged is not robust analysis. It is clickbait.
Broken Clocks
Of course, eventually there will be a market retracement and volatility will spike and our doomsayers will claim to have been right all along.
“Even a broken clock is right twice a day”
Their followers would likely have lost so much leading up to the eventual fall that they barely recoup losses. Or even had given up on bearish trades due to losses and so missed the fall.
They are trading their careers
When you are working out who to follow and seek out good market analysis it is worth remembering the advice I was given many years ago. Most of these people are not trading the markets, they are trading their careers.
Real traders are not constantly making and updating predictions of market direction. Much of the time they don’t have firm views. Those with firm views are not traders; they tend to be sell side or self promoters.
Trading is more about risk analysis than market predictions but making judgements about risk isn’t sexy either.
Learn to recognise who are the real traders and who are just looking for clicks and followers.
Keep Grinding
Gary
