I’ve received quite a few challenges regarding my distinction between economists and traders so I thought I’d respond here.

To begin with, I just wanna point out that economics is a huge area. This discipline covers everything from international trade policies to company expense accounts. It’s extremely complex, fascinating, and a powerful tool. That is why I would encourage anyone to read up as much as they can. A very good site is Morgan Stanley’s Global Economics Research Forum which contains very interesting and up-to-date articles and webcasts. If you ever want to know what is the big deal about America’s economic problems and its bursting credit bubble (in the sub-prime mortage market) and how it will affect the world very soon, or whether China is really serious or capable about containing its economic growth you can read about it there.

But I have always argued that these issues, interesting as they are, should not really factor in your trading decisions except in certain situations. If you wanna know why I think this, take a look at this Comment from Jim Cramer, an ex-hedge fund manager trader and trading professional. You will find that the daily gyrations of the stock market are influenced by people with more money, friends and greed than you or I. And that’s not just in this country.

Now, given that this is all going on, us ‘normal everyday’ investors try to tread in the middle. On the one hand we try to avoid getting into positions where we are at the mercy of market manipulators and sharks, and on the other hand we try to avoid getting into situations where we are betting on a long term fundamental story, holding onto a losing position and sitting it out whilst everyone is making money. So what should we be doing? Well I call it “walking the middle path”

The “middle path” is based on the understanding that the market is an emotional yet rational creature. It always has a good reason for what its doing, but you can never predict what that reason will be nor how and when it will start or stop reacting to it. But as long as you can identify what that reason is, then you will be able to ride the stock movement along. That is why it is so important to be able to analyse both economic arguments and price behaviour to find this reason. Be aware of all the economic arguments out there but to be dispassionate and approach them with a flexible and open mind as you never know which one the market is going to consider to be important.

Today, Mr Market is clearly spooked by the fallout in the US and to a certain extent by China’s belt tightening. These arguments have been around for years and it was only a few weeks ago when Mr Market decided to react. It’s difficult to know what that trigger was that caused the chinese market to drop 9% overnight on the fateful day of 27 February and the DJIA to shed 3% a day except that all the smart money in the world decided to take their money off the table. Since then Mr Market has been reeling in fear. Despite what bullish fundamental arguments there may be out there, or temporary bouts of support, it’s important to realise that the Mr Market is fearing for itself. As a trader, I have to respect this and not be positioned against this it whatever I may personally believe. What I am on the lookout for, is the turning point - i.e the moment when Mr Market changes its mind again. And that is when I will start buying again. Are we near this point? There is a possibility that the support found in the last week could be such a signal, which is why I loaded up on a small long term position on Topglov on Wednesday. But the more probable scenario is that the fear will turn into pain and pain into despair as the US melts down even further. Be on the lookout for signs whether Mr Market accepts or rejects this, by studying the US and Chinese indices.