Meet Kevin, The Ugly $18,000 Meme

Why Do Traders Exist?  What’s the Role of the Trader?

To speculate on the direction of markets?  

Sure, traders gamble (speculate) on the direction of markets but this is not the purpose a trader serves. This speculative behavior helps the trader, but does little for the health of the market.

Instead, the role of the trader is to keep markets efficient.  This is the expectation the market expects from its most active participants, and the reason professional traders are incentivized to transact with lower trading fees.

So, when markets hit multi-year highs (or lows) and therefore trade at brand new price ranges (i.e. Oil over $100) – it takes time before those markets settle into a new price range.

There’s more uncertainty with less historical data.

If there’s more uncertainty about the value of oil, it seems logical that all assets that are tightly correlated to oil also need to find some semblance of value.

And that’s when the conversation moves to trading correlated assets.

In MIT Digest 009, we reviewed $PSX, and the intricacies behind the crack spread.

Key Takeaway – When sectors act in unprecedented ways always try to find the most correlated assets and see if those relationships are holding strong or breaking down,

If tightly correlated relationships break down, that’s what a trade opportunity looks like, and that’s exactly what we’ve been able to do trading the Energy complex.