EUR has really rallied against CHF. I had a long position in this market, but I got in too early, before it was really sitting on the SNB’s line in the sand. As a result, I got out when the market returned to my breakeven point. I would now be up a little. This would have been a great trade if one had waited for the market to sit on its minimum — which I thought the SNB would maintain. I have wondered over time whether the fact that a market ought not to go very far in one direction is a good basis for betting it will go in the other — at present, I think that it is.

People say: “never catch a falling knife”. This principle occasionally comes to mind, especially when I fear I might be doing so, and I have toyed with it as a principle for trading. But it is not very useful advice. What counts as a falling knife? A decline of how much, and over what time scale? Is it merely about not buying a market that is running strongly downwards? What about running weakly downwards? What is the dividing line? What if the market has stopped at a certain level before? Should the falling knife or the “support level” be the dominant factor in one’s decision?

The answers to these questions are not clear. If one took a strict interpretation of the principle — which seems the only way to avoid the lack of clarity — one would only every buy things whose trends were upward (after all, a flat trend is often the prelude to further declines, so it is hard to argue a downtrend has been broken by a flat one). Thus the exhortation never to catch a falling knife reduces, in strict interpretation, to an exhortation only to buy trend-following signals. Since I have already established that trend-following signals are inappropriate for my kind of trading, “never catch a falling knife” must be useless advice. In future, I shall ignore it.

Searches for “debt ceiling” on Google hit a new post-2011 high on Monday, which suggests that the latest market pullback might in fact (and contrary to what I wrote yesterday) have something to do with it. The debt ceiling debate may be coming onto the market’s radar.

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