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Hedge Fund Market Wizard

Scott Ramsey: Low-Risk Futures Trader

A valuable lesson that Ramsey delivers is that integrating fundamental analysis can benefit technically-oriented traders greatly. It is not about executing a complicated fundamental analysis for price projections. It is about understanding the key fundamental drivers that determine the market direction.

 

Once the fundamental opinion is ascertained, Ramsey uses technical analysis to verify his scheduled plan. The objective is to identify the fundamental factors that can drive the market in one direction and then use technical analysis to trade in the same direction.

 

Fundamentals can also be used as a contradictory indicator. Ramsey looks for situations where the common market perception is contrary to the market action. He always goes long on the strongest market in a sector and short one the weakest one. However, novice traders make the mistake of doing exactly the opposite. They end up buying the laggers in a sector wrongly assuming that they have not moved yet and hence they will move potentially with less risk.

 

While looking for a reversal, he focuses on establishing a position in the market that delayed the most during the previous price move.

 

Ramsey is very attentive about price movements in related markets. When a market fails to respond according to the expectations in a correlated market, it indicates inherent strength or weakness. For example, in September 2011, equity prices rallied, but commodity prices weakened, after moving together for years. Ramsey interpreted the failure of commodity prices as an indication of impending weakness. Thereafter, commodity prices sank further.

 

The distinctive feature of his trading is his rigid risk control approach. From the point of entry, he usually risks 0.1% on each trade. Once he has moved ahead on trade, he allows more space for risk. This method ensures that losses on new trades are moderate.

 

Ramsey is susceptible to substantial loss after profiting largely from winning trades. He monitors his position multiple times at night even when he is on a holiday. Successful trading needs dedication. Such a commitment should not be a burden because trading is a passion and not a job. 

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Units 5/17