How To Trade Investment Bank Trade Calls?

The key is not to follow any trade recommendation blindly. They are used best as an aide to your own analysis.
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Giles Coghlan
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Investment Bank Trade Calls & Recommendations

Hi there traders, just got one question about how to trade using bank trade recommendations. And it’s a really good question. There is a right way and a wrong way to use bank trade recommendations.

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So first of all, let’s start off with the wrong way. Now the wrong way to use a bank trade recommendation, is to go to our trade ideas, you flick open the latest trade and the AHA TD Bank, they recommend going long euro pound, here’s the trade parameters. And they’ve recommended it as their trade of the week or therefore because it’s the trade of the week and because it’s TD Bank, therefore, I’m just going to blindly enter this position.

Now that’s the wrong way to trade a bank position. And the reason for that is because market circumstances change on a regular basis. So therefore a trade recommendation maybe back here from Credit Suisse on April the second or maybe even further from Nordea Markets in April of the first, there’s a lot of things that have happened in between the bank trade recommendation being published, and the present time.

So therefore, the first thing to realize is, you don’t blindly follow a bank trade because time has passed and you don’t have access to that trading desk and say to them, is this still a valid outlook? The second thing, is sometimes you’ll see that the bank trade ideas themselves are just not very good.

They could be something like, a reason here the Credit Suisse bank trade recommendation, they’re saying that the pound is starting to turn back low as expected after meeting the measured objective to its recently completed base. That’s quite a vague term, what is the measured objective? Can we really during these extreme market times volatility can we really be looking at normal measured objectives.

Okay, we’ve got a 50% retracement of the fall from December that’s a little bit easier to understand. And I’m not particularly picking on Credit Suisse. I’m just saying sometimes the rationale is not a particularly good rationale. So that’s another reason why we shouldn’t just blindly follow a trade ideas. And don’t just get caught up by the name, you might think, because JP Morgan had suggested this trade, it must be a good one. It’s not always the case. That’s the wrong way to use a bank trade idea.

However, bank trade ideas are very helpful, and they can be very useful. And the way to use them, is to look at them and look at the rationale. See the reason for their trade. Is it something you agree with? How does it go in line with your analysis? Is it an error of analysis that you’ve missed looking at the Credit Suisse example?

Maybe have a look at some of their rationale, maybe they spotted something that you’ve missed. Look at the entry details. Where did they recommend doing an entering? whereas price now, perhaps a trade is being offered at a real discount. So they really are helpful in seeing fundamental reasons for trades, maybe looking at this Nordea Markets.

One is that an aspect that you’re aware of maybe it’s an aspect of trading that you’re not quite up on, you can use it to stimulate your own research and thought, and that’s the correct way to use a bank trade, look at their rationale, look at their reasoning. And there’ll be times when you will look at your own research and say, oh, yes, they’ve mentioned that, but that’s not relevant because of X or Y. Or maybe you spotted something that the trade desk hasn’t. So in that way, you can use trade ideas to your advantage.

So that’s the the right way and the wrong way. And to summarize it, bank trade ideas, make very good servants, but then not very good masters. So make sure that you’re leading your own research and not allowing a bank idea to dictate your trading.

 

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