We will keep on returning to the thematics of 2025 every single time they appear. Already two out of the five themes for this year have been the biggest movers of markets, and we expect this thing to continue throughout. Make no mistake, as in indices and FX traders, we're going to have to accept that volatility is going to grow from this point, something that we should embrace.
Clearly Washington and Beijing are going to be the main impactors geopolitically, While the US dollar, crude and gold will be the markets most likely to see movement that will attract us as traders. Which brings me to thematic 1 of 2025 nationalism. It is going to be the theme that keeps on giving this year, because clearly the president sees tariffs and the nationalisation of the US economy as the future of US growth and economic management.
We have waited to comment over what might transpire in markets around tariffs but is it now being official and with the US over the weekend announced that tariffs on imports from Canada, Mexico, and China will take effect on Tuesday, February 4, only for this to be held off for 30 days for Mexico and Canada due to ‘constructive changes from sovereign nations’. We need to highlight something every telling in what was originally proposed in the tariffs. “Imports from Mexico and Canada (excluding energy products) will face a 25% tariff, while Canadian energy products and all imports from China will be subject to a 10% tariff.” We can’t highlight enough how much crude is going to be a pawn in all trade war mongering going forward. The fact that the administration excluded Canadian energy products from the 25% tariff does show that the President is aware that adversely impacting one of the biggest consumption products in the US will be highly detrimental to POTUS personal standing.
It is something the administration is aware of and will do whatever it can to mitigate a core product increasing in price. However this also shows its hand – the retaliation from China is a 10% tariffs on US LNG coal and crude products. This hits the US where it hurts most, most will forget the US is the largest exporter of oil on the planet.
It just gets blurred when we look at OPEC as a whole and the fact that this cartel produces 21 to 23% of the world's global oil supplies. China doesn't have to play by the same rules as the US. It can get around its tariffs by going to nations such as Venezuela, something most in the West can't do.
Leaving the US with less trade revenue, a core product that appears more expensive to Chinese consumers that will inevitably look to other options and the dream of using tariffs to fund personal income tax cuts in tatters. But it's more than that too, in the words of the late great Milton Friedman: ‘tariffs are tax on the consumer not on the sovereign.” The upside risks to inflation in the coming months are growing by the day. The Fed has signed as much and now so has the market.
Which brings us to gold, the astronomical rise that we have seen in the price of gold over the last three to four weeks shows very clearly the inflation risk markets now see. The question we keep getting is how high can gold actually go? And add to this the chart shows that gold has actually broken through most resistance levels and is now trading in uncharted levels and making new highs daily.
It's not hard to see why, should tariffs on Canada and Mexico persist beyond a week or two, food and energy prices in headline inflation data could be affected relatively quickly. Indicators like daily retail gas prices and weekly food prices may provide early signals of the impact on headline CPI for February. Next Monday’s inflation report may actually be the first reading to show the effects of proposed tariffs and explain almost exclusively the capital that is flowing into gold.
For those out there looking to estimate how much tariffs would impact US CPI. Here is a previous estimate from the market around a 25% tariff on Canadian oil. A 25% tariff could push headline CPI up by approximately 0.2 percentage points alone with the broader tariffs pushing the upper-bound estimate by as much as 0.8 percentage points.
Approximately 10% of all US consumer spending involves imported goods, either directly or indirectly. With 25% of total imports facing a 25% tariff and approximately 17% subject to a 10% tariff, the potential inflationary impact is notable. Add to this the indirect effects we have already seen such as retaliatory tariffs or further trade tensions, add uncertainty.
These could and will push inflation expectations higher, posing a greater inflationary risk. Secondly, prolonged tariffs might also slow growth and employment - something indices traders will be very very aware of and considering the valuation of the S&P 500 and the like this is a concern. In short semantic 1 of nationalism is becoming an absolute core player in 2025 and opportunities and risks are presenting themselves readily.
As traders we need to be ready to take every opportunity that we can.
By
Evan Lucas
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain our Disclosure Statement (DS) and other legal documents available on our website for that product before making any decisions.
Every trader has had that moment where a seemingly perfect trade goes astray.
You see a clean chart on the screen, showing a textbook candle pattern; it seems as though the market planets have aligned, and so you enthusiastically jump into your trade.
But before you even have time to indulge in a little self-praise at a job well done, the market does the opposite of what you expected, and your stop loss is triggered.
This common scenario, which we have all unfortunately experienced, raises the question: What separates these “almost” trades from the truly higher-probability setups?
The State of Alignment
A high-probability setup isn’t necessarily a single signal or chart pattern. It is the coming together of several factors in a way that can potentially increase the likelihood of a successful trade.
When combined, six interconnected layers can come together to form the full “anatomy” of a higher-probability trading setup:
Context
Structure
Confluence
Timing
Management
Psychology
When more of these factors are in place, the greater the (potential) probability your trade will behave as expected.
Market Context
When we explore market context, we are looking at the underlying background conditions that may help some trading ideas thrive, and contribute to others failing.
Regime Awareness
Every trading strategy you choose to create has a natural set of market circumstances that could be an optimum trading environment for that particular trading approach.
For example:
Trending regimes may favour momentum or breakout setups.
Ranging regimes may suit mean-reversion or bounce systems.
High-volatility regimes create opportunity but demand wider stops and quicker management.
Investing time considering the underlying market regime may help avoid the temptation to force a trending system into a sideways market.
Simply looking at the slope of a 50-period moving average or the width of a Bollinger Band can suggest what type of market is currently in play.
Sentiment Alignment
If risk sentiment shifts towards a specific (or a group) of related assets, the technical picture is more likely to change to match that.
For example, if the USD index is broadly strengthening as an underlying move, then looking for long trades in EURUSD setups may end up fighting headwinds.
Setting yourself some simple rules can help, as trading against a potential tidal wave of opposite price change in a related asset is not usually a strong foundation on which to base a trading decision.
Key Reference Zones
Context also means the location of the current price relative to levels or previous landmarks.
Some examples include:
Weekly highs/lows
Prior session ranges, e.g. the Asian high and low as we move into the European session
Major “round” psychological numbers (e.g., 1.10, 1000)
A long trading setup into these areas of market importance may result in an overhead resistance, or a short trade into a potential area of support may reduce the probability of a continuation of that price move before the trade even starts.
Market Structure
Structure is the visual rhythm of price that you may see on the chart. It involves the sequences of trader impulses and corrections that end up defining the overall direction and the likelihood of continuation:
Uptrend: Higher highs (HH) and higher lows (HL)
Downtrend: Lower highs (LH) and lower lows (LL)
Transition: Break in structure often followed by a retest of previous levels.
A pullback in an uptrend followed by renewed buying pressure over a previous price swing high point may well constitute a higher-probability buy than a random candle pattern in the middle of nowhere.
Compression and Expansion
Markets move through cycles of energy build-up and release. It is a reflection of the repositioning of asset holdings, subtle institutional accumulation, or a response to new information, and may all result in different, albeit temporary, broad price scenarios.
Compression: Evidenced by a tightening range, declining ATR, smaller candles, and so suggesting a period of indecision or exhaustion of a previous price move,
Expansion: Evidenced by a sudden breakout, larger candle bodies, and a volume spike, is suggestive of a move that is now underway.
A breakout that clears a liquidity zone often runs further, as ‘trapped’ traders may further fuel the move as they scramble to reposition.
A setup aligned with such liquidity flows may carry a higher probability than one trading directly into it.
Confluence
Confluence is the art of layering independent evidence to create a whole story. Think of it as a type of “market forensics” — each piece of confirmation evidence may offer a “better hand’ or further positive alignment for your idea.
There are three noteworthy types of confluence:
Technical Confluence – Multiple technical tools agree with your trading idea:
Moving average alignment (e.g., 20 EMA above 50 EMA) for a long trade
A Fibonacci retracement level is lining up with a previously identified support level.
Momentum is increasing on indicators such as the MACD.
Multi-Timeframe Confluence – Where a lower timeframe setup is consistent with a higher timeframe trend. If you have alignment of breakout evidence across multiple timeframes, any move will often be strengthened by different traders trading on different timeframes, all jumping into new trades together.
3. Volume Confluence – Any directional move, if supported by increasing volume, suggests higher levels of market participation. Whereas falling volume may be indicative of a lesser market enthusiasm for a particular price move.
Confluence is not about clutter on your chart. Adding indicators, e.g., three oscillators showing the same thing, may make your chart look like a work of art, but it offers little to your trading decision-making and may dilute action clarity.
Think of it this way: Confluence comes from having different dimensions of evidence and seeing them align. Price, time, momentum, and participation (which is evidenced by volume) can all contribute.
Timing & Execution
An alignment in context and structure can still fail to produce a desired outcome if your timing is not as it should be. Execution is where higher probability traders may separate themselves from hopeful ones.
Entry Timing
Confirmation: Wait for the candle to close beyond the structure or level. Avoid the temptation to try to jump in early on a premature breakout wick before the candle is mature.
Retests: If the price has retested and respected a breakout level, it may filter out some false breaks that we will often see.
Then act: Be patient for the setup to complete. Talking yourself out of a trade for the sake of just one more candle” confirmation may, over time, erode potential as you are repeatedly late into trades.
Session & Liquidity Windows
Markets breathe differently throughout the day as one session rolls into another. Each session's characteristics may suit different strategies.
For example:
London Open: Often has a volatility surge; Range breaks may work well.
New York Overlap: Often, we will see some continuation or reversal of morning trends.
Asian Session: A quieter session where mean-reversion or range trading approaches may do well
Trade Management
Managing the position well after entry can turn probability into realised profit, or if mismanaged, can result in losses compounding or giving back unrealised profit to the market.
Pre-defined Invalidation
Asking yourself before entry: “What would the market have to do to prove me wrong?” could be an approach worth trying.
This facilitates stops to be placed logically rather than emotionally. If a trade idea moves against your original thinking, based on a change to a state of unalignment, then considering exit would seem logical.
Scaling & Partial Exits
High-probability trade entries will still benefit from dynamic exit approaches that may involve partial position closes and adaptive trailing of your initial stop.
Trader Psychology
One of the most important and overlooked components of a higher-probability setup is you.
It is you who makes the choices to adopt these practices, and you who must battle the common trading “demons” of fear, impatience, and distorted expectation.
Let's be real, higher-probability trades are less common than many may lead you to believe.
Many traders destroy their potential to develop any trading edge by taking frequent low-probability setups out of a desire to be “in the market.”
It can take strength to be inactive for periods of time and exercise that patience for every box to be ticked in your plan before acting.
Measure “You” performance
Each trade you take becomes data and can provide invaluable feedback. You can only make a judgment of a planned strategy if you have followed it to the letter.
Discipline in execution can be your greatest ally or enemy in determining whether you ultimately achieve positive trading outcomes.
Bringing It All Together – The Setup Blueprint
Final Thoughts
Higher-probability setups are not found but are constructed methodically.
A trader who understands the “higher-probability anatomy” is less likely to chase trades or feel the need to always be in the market. They will see merit in ticking all the right boxes and then taking decisive action when it is time to do so.
It is now up to you to review what you have in place now, identify gaps that may exist, and commit to taking action!
One of the most impactful books I’ve ever read is “The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change” by Stephen Covey.
When it was first published in 1989, it quickly became one of the most influential works in business and personal development literature, and retained its place on bestseller lists for the next couple of decades.
The compelling, comprehensive, and structured framework for personal growth presented in the book has undoubtedly inspired many to rethink how they organise their lives and priorities, both professionally and personally.
Although its lessons were originally designed for self-improvement and positive structured growth, the underlying principles are universal, making them easily transferable to many areas of life, including trading.
In this article, you will explore how each of Covey’s seven original habits can be reframed within a trading context, in an attempt to offer a structure that may help guide you to becoming the best trader you can be.
1. Be Proactive
Being proactive means recognising that we have the power to choose our responses and to shape outcomes through appropriate preparation with subsequent planned reactions.
In a Trading Context:
For traders, this means anticipating potential problems before they arise and putting measures in place to better mitigate risk.
Rather than waiting for issues to unfold, the proactive trader identifies potential areas of concern and ensures that they have access to the right tools, resources, and people to prepare effectively, whatever the market may throw at them.
What This Means for You:
Being proactive may involve seeking out quality education and services, maintaining access to accurate and timely market information, continually assessing risk and opportunity, and having systems to manage those risks within defined limits.
Consequences of Non-Action:
Inadequate preparation and a lack of defined systems often lead to poor trading decisions and less-than-desired outcomes.
Failing to assess risk properly can result in significant and often avoidable losses.
By contrast, a proactive approach builds resilience and confidence, ensuring that when challenges arise, your response is measured and less emotionally driven by what is happening on the screen in front of you.
2. Begin with the End in Mind
Covey's second habit is about defining purpose. It suggests that effective people are more likely to achieve what is possible if they start with a clear understanding of their destination, so every action aligns with that ultimate vision.
In a Trading Context:
Ask yourself: What is my true purpose for trading?
Many traders may instinctively answer “to make money,” but money is surely only a vehicle to achieve something else in your world for you and those you care about, not a purpose per se.
You need to clarify what trading success really means for you.
Is it a greater degree of financial independence through increased income or capital growth, the freedom of having more time, achieving a personal challenge of becoming an effective trader, or a combination of any of these?
What This Means to You:
Try framing your purpose as, “I must become a better trader so that I can…” and complete a list with your genuine reasons for tackling the market and its challenges.
This helps you establish meaningful short-term development goals that keep you moving toward your vision. Keep that purpose visible, as a note near your trading screen that reminds you why you are doing this.
Consequences of Non-Action:
Traders with a clearly defined purpose are more likely to stay disciplined and consistent.
Those without one often drift, chasing short-term gains without direction. There is ample evidence that formalising your development in whatever context through goal setting can significantly increase the likelihood of success. Why would trading be any different?
Surely the bottom-line question to ask yourself is, “Am I willing to risk my potential by trading without purpose?”
3. Put First Things First
This habit is about time management and prioritisation. This involves focusing your efforts and energy on what truly matters. As part of the exploration of this concept, Covey emphasised distinguishing between what is important and what is merely urgent.
In a Trading Context:
Trading demands commitment, learning, and reflection.
It is not just about screen time but about using that time effectively.
Managing activities to ensure your effort is spent wisely on planning, measuring, journaling and performance evaluation, and refining systems, accordingly, are all critical to sustaining both improvements in results and balance.
What This Means to You:
Traders often believe they need to spend more time trading when what they really need is to focus on better time allocation.
It is logical to suggest that prioritising activities that can often contribute directly to improvement, such as system testing, reviewing performance, analysing results, and refining your strategy, is worthwhile.
These high-value tasks can help traders focus their time more deliberately and systematically.
Consequences of Non-Action:
If you fail to control your trading time effectively, you will be more likely to spend much of it on low-impact activities that produce little progress.
Over time, this not only hurts your results but also reduces the real “hourly value” of your trading effort.
In business terms, and of course, you should be treating your trading as you would any business activity; poor prioritisation can inflate your costs and diminish your potential trading outcomes.
4. Think Win: Win
Covey's fourth habit encouraged an attitude of mutual benefit, where seeking solutions that facilitate positive outcomes for all parties.
In a Trading Context:
In trading, this concept must be adapted to suggest that developing a mindset that recognises every well-executed plan as a win, even when an individual trade results in a loss.
Some trading ideas will simply not work out, and so some losses are inevitable, but if they remain within defined limits, they should not be viewed as failures but rather as a successful adherence to a trading plan. In the aim of developing consistency in action, and the widely held belief that this is one of the cornerstones of effective trading, then it surely is a win to fulfil this.
So, in simple terms, the real “win” lies in a combination of maintaining discipline, following your system, and controlling risk beyond just looking at the P/L of a single trade.
What This Means to You:
Building and trading clear, unambiguous systems that you follow consistently has got to be the goal.
This process produces reliable data that you can later analyse and subsequently use to refine specific strategies and personal performance.
When you do this, every outcome, whether profit or loss, can serve as valuable feedback.
For example, a controlled loss that fits your plan is proof that your system works and that you are protecting your capital.
Alternatively, a trailing stop strategy, which means you exit trades in a timely way and give less profit back to the market, provides positive feedback that your system has merit in achieving outcomes.
Consequences of Non-Action:
Without this mindset shift, traders can become emotionally reactive, interpreting normal drawdowns as personal defeats.
This fosters loss aversion and other biases that can erode decision-making quality if left unchecked. Through the process of redefining “winning,” you are potentially safeguarding both your capital and, importantly, your trading confidence (a key component of trading discipline).
5. Seek First to Understand and Then Take Action
Covey's fifth habit emphasises empathy, the act of listening and aiming to fully understand before responding. In trading, this principle translates to understanding the market environment before taking any action.
In a Trading Context:
Many traders act impulsively, driven by excitement or fear, which often results in entering trades without taking into account the full context of what is happening in the market, and/or the potential short-term influences on sentiment that may increase risk.
This “minimalisation bias,” defined as acting on limited information, will rarely produce consistent results. Instead, adopt a process that begins with observation and comprehension.
What This Means to You:
Establishing a daily pre-trading routine is critical. This may include a review of key markets, sentiment indicators, and potential catalysts for change, such as imminent key data releases. Understanding what the market is telling you before you decide what to do is the aim of having this sort of daily agenda.
This approach may not only improve trade selection but also enable you to get into a state of psychological readiness that can facilitate decision-making quality throughout the session.
Consequences of Non-Action:
Failing to prepare for the trading day ahead can mean not only exposing yourself to unnecessary risk but also arguably being more likely to miss potential opportunities.
A trader who acts without understanding is vulnerable both psychologically and financially. Conversely, being forewarned is being forearmed. When you aim to understand markets first before any type of trading activity, your actions are more likely to be deliberate, grounded, and more effective.
6. Synergise
Synergy in Covey's model means valuing differences and combining the strengths of those around you to create outcomes greater than the sum of their parts.
In a Trading Context:
In trading, synergy refers to the integration of multiple systems and disciplines that work together. This includes your plan, your record keeping and performance management processes, your time management, and your emotional balance.
No single system is enough; success comes from the synergy of elements that support and inform one another.
What This Means to You:
Integrating learning and measurement is an integral part of your trading development process. Journaling, for example, allows you to assess not only your technical performance but also your behavioural consistency.
This self-awareness allows you to refine your plan and so helps you operate with greater confidence.
The synergy between rational analysis and emotional composure is what is more likely to lead to consistently sound trading decisions.
Consequences of Non-Action:
When logic and emotion are out of balance, decision-making will inevitably suffer.
If your systems are incomplete, ambiguous, or poorly connected to the reality of your current level of understanding, competence and confidence, your results are likely to be inconsistent. Building synergy across all areas of your trading practice, including that of evaluation and development in critical trading areas, will help create cohesion, efficiency, and better performance.
7. Sharpen the Saw
Covey's final habit focuses on continuous learning and refinement, including maintaining and improving the tools at your disposal and skills and knowledge that allow you to perform effectively.
In a Trading Context:
In trading, this translates to creating a plan to achieve ongoing, purposeful learning.
Even small insights can make a large difference in results. Effective traders continually refine their knowledge, ask new questions, and apply lessons from experience.
What This Means to You:
Trading learning can, of course, take many forms. Discovering new indicators that may offer some confluence to price action, testing different strategies, exploring new markets, or simply understanding more about yourself as a trader.
There is little doubt that active participation in learning keeps you engaged, adaptable and sharp. Even making sure you ask at least one question at a seminar or webinar or making a simple list at the end of each session of the "3 things I learned", can be invaluable in developing momentum for your growth as a trader.
Your record-keeping and performance metrics should generate fresh questions that can guide future development.
Consequences of Non-Action:
Without direction in your learning, your progress is likely to slow.
I often reference that when someone talks about trading experience in several years, this is only meaningful if there has been continuous growth, rather than staying in the same place every year (i.e. only one year of meaningful experience)
Passive trading learning, for example, reading an article without applying, watching a webinar without engagement, or measuring without closing the circle through putting an action plan together for your development, can all lead to stagnation.
It is fair to suggest that taking shortcuts in trading learning is likely to translate directly into shortcuts in result success.
Active, focused development is essential for sustained improvement.
Are You Ready for Action?
Stephen Covey’s The 7 Habits of Highly Effective People presented a timeless model for self-development and purposeful living.
When applied to trading, these same habits form a powerful framework for consistency, focus, and growth.
Trading is a pursuit that demands both technical skill and emotional strength. Success is rarely about finding the perfect system, but about developing the right habits that support consistent, rational decision-making over time.
By integrating the principles of Covey’s seven habits into your trading practice, you create a foundation not only for profitability but for continual personal growth.
A market bubble occurs when asset prices rise far beyond any reasonable valuation.
It is driven by speculation, emotion, and the belief that prices will continue rising indefinitely.
For traders, the challenge is more about finding a way to manage a bubble, rather than just identifying that one exists.
By their very nature, bubbles can persist far longer than any logical analysis suggests. There are opportunities as they develop, but timing their peak is virtually impossible.
Understanding their characteristics and having a systematic way of managing bubbles in your trading strategy is worth considering for any trader.
What is a Bubble?
Market bubbles have distinct features that separate them from normal bull markets or even overvalued conditions for a particular asset:
Dramatic Price Appreciation Disconnected From Fundamentals
In a bubble, traditional valuation metrics become meaningless.
Company or asset fundamentals that usually matter to market participants are ignored in the hope of what might be.
Cash flow, profit margins, competitive positioning, and (in some cases) producing revenue may be dismissed.
Widespread Participation And "This Time Is Different" Narratives
Bubbles require mass market participation.
When every headline you see or article you read references "this time is different," or "the old rules don't apply anymore," it is a sign that the collective psychology has shifted from normal caution.
Social media may begin to explode with ever more frequent success stories, and for the individual trader, the fear of missing out becomes increasingly overwhelming.
Credit and Leverage Fuelling Demand
Bubbles are typically accompanied by easier credit conditions.
When interest rates are lowered and investors are confident in general economic conditions, any spare cash is put to work.
In stock or other market bubbles, you may see retail traders maxing out credit cards to buy call options, with the put/call ratio becoming increasingly distorted.
This leverage often amplifies the rise and the eventual fall, making the risk even more acute and potentially damaging to trader capital.
Vertical Price Charts in Final Stages
One of the telltale signs of a bubble's final phase is a parabolic price chart.
Prices seem to go up daily, and every minor pullback is short-lived (creating more buying pressure).
This is the euphoria stage. It is where the greatest danger is.
The fear of missing out on further moves is at its highest, and a logical willingness to take profit off the table diminishes in the minds of ever more excited traders.
New participants may continue to enter solely for the way the price is appreciating. Entering into the move only understanding that what they are buying is going up, so they want to join in too.
Bubble vs. Overvalued: Key Differences
Not every expensive market is a bubble. Several characteristics distinguish a bubble from a simpler and far less dangerous overvaluation:
Elevated Valuations With Reasoned Fundamental Justification
An overvalued market has stretched valuations, but can point to real supporting factors (at least to some degree).
Examples include strong earnings growth, low interest rates, disruption in service or productivity, and providing genuine temporary value.
Even if prices respond to less obvious immediate influencing factors, such as international events, policy changes, and supply issues, the fact that some factors justify continued positive sentiment (even if somewhat unfulfilled) is a positive sign.
Linear or Steady Uptrend
Overvalued markets tend to grind higher with a more sustainable trend rather than a vertical spike. There are normal corrections along the way, even if the highs and lows of a fluctuation are higher.
Reasonable Participation Levels
There is evidence of institutional investors buying on any dips, but common retracements last days or even weeks.
Retail participation exists but isn't frenzied and plastered all over social media every day or referenced in mainstream media consistently.
Some Scepticism Still Exists
There will be some legitimate and contrary opinions about valuations. Major financial media will present both bearish and bullish cases when a stock is discussed.
Trading Strategies for Potential Bubble Management
Here is the scenario: You bought early in the up move, you are now in profit, but some of the bubble signs are beginning to show up in your thinking.
Tiered Profit-Taking Strategies
Don't try to pick the top. As an alternative approach, begin to scale out systematically with partial closes. This will alleviate the potential for FOMO creeping in.
You could stage this with set points, e.g. sell 30% when you've doubled, another 30% when you've tripled, 20% when conditions clearly show evidence of entering bubble territory and, having banked a substantial profit already, you keep the final 20% with a trailing stop for the final run if it happens.
Trailing Stops With Wider Bands to Accommodate Volatility
Let’s assume you see the merit in some form of trial stop. In bubble conditions, normal stop distances will get you whipsawed out. Use percentage-based trailing stops or ATR multiples with enough room to accommodate bigger intraday moves.
For example, if your norm is to trail your stop 1.5 x ATR behind price at the end of every candle, then in increasingly volatile conditions during a parabolic move, consider 2,5 x ATR to allow room to move while still offering protection against price collapse.
Reduce Position Sizing and Leverage
The temptation in bubbles is to maximise gains by increasing your margin and entering more and more positions in one asset.
High leverage and significant single asset exposure in bubble conditions is a potential death sentence to trading capital.
Recognising the added risks you are contemplating before entry is critical. Combining this with an approach that reduces position sizing and increases margin requirements is consistent with good trading practice as risk increases.
Planned and Rigid Exits
Before buying, you should have already made decisions on what exit approaches you should take and the parameters at which they will be executed,
Having the exit plan as you enter can limit the chance of getting trapped by greed. Neglecting this and focusing on the opportunity alone can be disastrous.
Never Assume You Can Time the Top
It is usually a big mistake if you believe you will recognise the exact top and exit perfectly. Let’s be frank, even if you hit it lucky once, you won't be able to every time — no one does.
Recognise Behavioural Biases That May Affect Your Judgment
Bubbles can create powerful psychological forces.
Anchoring bias may mean that you fixate on peak prices. Confirmation bias makes you seek information supporting your bullish view and ignore opposing evidence. Recency bias makes you believe the recent trend will continue indefinitely.
The indisputable key to any bias management is awareness and honesty that some markets may just not be for you (or if they are, to proceed with extreme and continuous caution).
Psychological Preparation for Rapid Reversals
Mentally rehearse the worst scenario and clarity of planned action, e.g., “if it drops 10% in three days, I will ….”.
Having thought through your response and armed with unambiguous exits in advance will make execution easier when emotions run high and begin to dominate.
Final Thoughts
Extreme valuations, little fundamental underpinning, parabolic price action, and universal bullishness should be part of your bubble identification checklist and flag that your bubble action plan should be implemented.
If you are already in, or tempted to be so, then approach bubbles with honesty, awareness of your trading self and extraordinary discipline to follow through, as predicting what and when things may dramatically turn is close to impossible.
Never forget you are not smarter than the market, but you can (potentially) be smarter than many traders by planning and doing the right thing.
For over 110 years, the Federal Reserve (the Fed) has operated at a deliberate distance from the White House and Congress.
It is the only federal agency that doesn’t report to any single branch of government in the way most agencies do, and can implement policy without waiting for political approval.
These policies include interest rate decisions, adjusting the money supply, emergency lending to banks, capital reserve requirements for banks, and determining which financial institutions require heightened oversight.
The Fed can act independently on all these critical economic decisions and more.
But why does the US government enable this? And why is it that nearly every major economy has adopted a similar model for their central bank?
The foundation of Fed independence: the panic of 1907
The Fed was established in 1913 following the Panic of 1907, a major financial crisis. It saw major banks collapse, the stock market drop nearly 50%, and credit markets freeze across the country.
At the time, the US had no central authority to inject liquidity into the banking system during emergencies or to prevent cascading bank failures from toppling the entire economy.
J.P. Morgan personally orchestrated a bailout using his own fortune, highlighting just how fragile the US financial system had become.
The debate that followed revealed that while the US clearly needed a central bank, politicians were objectively seen as poorly positioned to run it.
Previous attempts at central banking had failed partly due to political interference. Presidents and Congress had used monetary policy to serve short-term political goals rather than long-term economic stability.
So it was decided that a stand-alone body responsible for making all major economic decisions would be created. Essentially, the Fed was created because politicians, who face elections and public pressure, couldn’t be relied upon to make unpopular decisions when needed for the long-term economy.
Although the Fed is designed to be an autonomous body, separate from political influence, it still has accountability to the US government (and thereby US voters).
The President is responsible for appointing the Fed Chair and the seven Governors of the Federal Reserve Board, subject to confirmation by the Senate.
Each Governor serves a 14-year term, and the Chair serves a four-year term. The Governors' terms are staggered to prevent any single administration from being able to change the entire board overnight.
Beyond this “main” board, there are twelve regional Federal Reserve Banks that operate across the country. Their presidents are appointed by private-sector boards and approved by the Fed's seven Governors. Five of these presidents vote on interest rates at any given time, alongside the seven Governors.
This creates a decentralised structure where no single person or political party can dictate monetary policy. Changing the Fed's direction requires consensus across multiple appointees from different administrations.
The case for Fed independence: Nixon, Burns, and the inflation hangover
The strongest argument for keeping the Fed independent comes from Nixon’s time as president in the 1970s.
Nixon pressured Fed Chair Arthur Burns to keep interest rates low in the lead-up to the 1972 election. Burns complied, and Nixon won in a landslide. Over the next decade, unemployment and inflation both rose simultaneously (commonly referred to now as “stagflation”).
By the late 1970s, inflation exceeded 13 per cent, Nixon was out of office, and it was time to appoint a new Fed chair.
That new Fed chair was Paul Volcker. And despite public and political pressure to bring down interest rates and reduce unemployment, he pushed the rate up to more than 19 per cent to try to break inflation.
The decision triggered a brutal recession, with unemployment hitting nearly 11 per cent.
But by the mid-1980s, inflation had dropped back into the low single digits.
Pre-Volcker era inflation vs Volcker era inflation | FRED
Volcker stood firm where non-independent politicians would have backflipped in the face of plummeting poll numbers.
The “Volcker era” is now taught as a masterclass in why central banks need independence. The painful medicine worked because the Fed could withstand political backlash that would have broken a less autonomous institution.
Are other central banks independent?
Nearly every major developed economy has an independent central bank. The European Central Bank, Bank of Japan, Bank of England, Bank of Canada, and Reserve Bank of Australia all operate with similar autonomy from their governments as the Fed.
However, there are examples of developed nations that have moved away from independent central banks.
In Turkey, the president forced its central bank to maintain low rates even as inflation soared past 85 per cent. The decision served short-term political goals while devastating the purchasing power of everyday people.
Argentina's recurring economic crises have been exacerbated by monetary policy subordinated to political needs. Venezuela's hyperinflation accelerated after the government asserted greater control over its central bank.
The pattern tends to show that the more control the government has over monetary policy, the more the economy leans toward instability and higher inflation.
Independent central banks may not be perfect, but they have historically outperformed the alternative.
Turkey’s interest rates dropped in 2022 despite inflation skyrocketing
Why do markets care about Fed independence?
Markets generally prefer predictability, and independent central banks make more predictable decisions.
Fed officials often outline how they plan to adjust policy and what their preferred data points are.
Currently, the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE) index, Bureau of Labor Statistics (BLS) monthly jobs reports, and quarterly GDP releases form expectations about the future path of interest rates.
This transparency and predictability help businesses map out investments, banks to set lending rates, and everyday people to plan major financial decisions.
When political influence infiltrates these decisions, it introduces uncertainty. Instead of following predictable patterns based on publicly released data, interest rates can shift based on electoral considerations or political preference, which makes long-term planning more difficult.
The markets react to this uncertainty through stock price volatility, potential bond yield rises, and fluctuating currency values.
The enduring logic
The independence of the Federal Reserve is about recognising that stable money and sustainable growth require institutions capable of making unpopular decisions when economic fundamentals demand them.
Elections will always create pressure for easier monetary conditions. Inflation will always tempt policymakers to delay painful adjustments. And the political calendar will never align perfectly with economic cycles.
Fed independence exists to navigate these eternal tensions, not perfectly, but better than political control has managed throughout history.
That's why this principle, forged in financial panics and refined through successive crises, remains central to how modern economies function. And it's why debates about central bank independence, whenever they arise, touch something fundamental about how democracies can maintain long-term prosperity.
February opens with a policy-heavy tone led by Australia’s RBA decision, while Japan provides the core macro anchors through GDP and inflation updates. In contrast, China’s calendar lightens due to the Spring Festival, shifting attention to liquidity and policy headlines. Across the region, a firmer USD and softer metals continue to frame cross-asset performance, especially for commodity-linked currencies.
Australia: RBA
Australia begins February with a policy-driven focus as the Reserve Bank of Australia (RBA) delivers its monetary policy decision, setting the month’s initial tone for rates, currency, and equities. While markets had priced around a 70% chance of a hike as of 30 January, expectations remain highly sensitive to evolving data and RBA commentary.
Key dates
RBA Monetary Policy Decision: 2:30 pm, 3 February (AEDT)
Wage Price Index (WPI): 11:30 am, 18 February (AEDT)
Labour Force: 11:30 am, 19 February (AEDT)
What markets look for
Aussie traders will gauge whether the RBA reinforces a data‑dependent stance or shifts more decisively toward tightening.
Wage and labour data will be central in testing inflation persistence, while the next CPI reading anchors positioning heading into March. A balanced or mildly hawkish tone could keep short‑term yields elevated and limit downside in the AUD.
Market sensitivities
AUD and ASX performance will primarily reflect the RBA’s policy tone and broader USD momentum, while resource‑linked sectors should continue to track metals and bulk commodity trends.
The February earnings season, highlighted by CBA and CSL (11 Feb), BHP (17 Feb), and Rio Tinto (19 Feb), is also set to reintroduce stock‑specific drivers once the initial policy focus fades.
Australia’s February Consumer Price Index (CPI) release will be a key post‑RBA event, offering the clearest read on whether domestic inflation pressures are easing in line with the central bank’s expectations.
The data following the RBA’s February policy decision and could quickly reset rate path probabilities reflected in ASX futures pricing.
Key dates
Consumer Price Index (CPI): 11:30 am, 25 February (AEDT)
What markets look for
Markets will focus on whether trimmed‑mean and services inflation components show further moderation.
Persistent strength in non‑tradables or wage‑related sectors could reinforce expectations for additional tightening later in Q1, while a softer headline would support the view that policy rates have peaked.
Market sensitivities
A stronger‑than‑expected CPI print would likely lift front‑end yields and support the AUD, while a downside surprise could weigh on the currency and flatten the yield curve.
Equity sentiment may diverge and financials could find relief from a pause bias, whereas rate‑sensitive sectors like real estate and consumer discretionary would benefit most from a cooler inflation read.
Japan’s Q4 GDP release will be a key reference point for how firmly the recovery is progressing after recent quarters of uneven growth momentum. Arriving ahead of the Tokyo CPI print, it helps shape expectations for domestic demand, external trade performance, and how much scope policymakers have to adjust their stance without derailing activity.
Key dates
Q4 GDP: 11:50 pm, 15 February (GMT)/ 10:50 am, 16 February (AEDT)
What markets look for
Investors pay close attention to the balance between consumption, business investment, and net exports to judge whether growth is broad‑based or narrowly supported.
A stronger‑than‑expected print tends to reinforce confidence in Japan’s expansion story, while a weaker outcome can revive concerns about stagnation and delay expectations for any meaningful policy shift.
Japan: Tokyo CPI
Tokyo’s latest inflation reading shows headline CPI easing to 1.5% year‑on‑year in January from 2.0% in December 2025, dipping further below the recent peaks seen during the post‑pandemic upswing.
The CPI release offers one of the timeliest reads on Japan’s inflation pulse and is closely watched as a lead indicator for nationwide price trends.
Coming late in the month, it serves as a check on whether the recent inflation upswing is sustaining at levels consistent with policymakers’ many objectives.
Tokyo CPI: 11:30 pm, 26 February (GMT)/ 10:30 am, 27 February (AEDT)
What markets look for
Attention centres on core measures that strip out volatile components, alongside services prices, to see whether underlying inflation is holding near target or drifting lower.
A firmer profile strengthens the case that Japan is exiting its low‑inflation regime, while softer readings suggest that price pressures remain fragile and dependent on external factors.
Market sensitivities
A hotter‑than‑expected Tokyo CPI print can push Japanese yields higher and lend support to the yen, often translating into pressure on exporter‑heavy equity names.
Conversely, a softer outcome tends to ease yield pressures, weaken the yen, and provide some relief to equity sectors that benefit from a more accommodative policy backdrop.
China’s February macro calendar is structurally lighter due to Spring Festival timing.
The National Bureau of Statistics of China notes that some releases are adjusted around Spring Festival timing, with the February PMI scheduled for early March leaving markets without major domestic data anchors for much of the month.
Key dates
Spring Festival: 17 February to 3 March
What markets look for
Markets turn their focus to policy signals out of Beijing — think targeted stimulus or liquidity injections, as well as shifts in funding conditions and flows responding to global risk sentiment or USD moves.
Trade and tariff rhetoric, or surprise consumption measures like expanded trade-in subsidies and festive spending incentives recently flagged by the Ministry of Commerce, often spark sharper reactions than the usual data releases.
Market sensitivities
CNH and CNY pairs turn more reactive to USD flows and external headlines, often amplifying volatility in regional equities, commodity currencies like AUD, and China-exposed EM assets.
Holiday-thinned liquidity elevates headline risk, particularly in materials (iron ore, copper), tech hardware supply chains, and regional financials, where policy surprises or US tariff updates can trigger 1–2% daily index swings.
Expected earnings date: Wednesday, 4 February 2026 (US, after market close) / ~8:00 am, Thursday, 5 February 2026 (AEDT)
Alphabet’s earnings provide insight into global digital advertising demand, enterprise cloud spending, and broader technology-sector investment trends.
As Google Search and YouTube are widely used by both consumers and businesses, results are often used as one input when assessing online activity and corporate marketing budgets, alongside other indicators.
Key areas in focus
Search
Search advertising remains Alphabet’s largest revenue driver. Markets are likely to focus on ad growth rates, pricing metrics such as cost-per-click, and overall advertiser demand across sectors such as retail, travel, and small-to-medium businesses.
YouTube
YouTube contributes to both advertising and subscription revenue. Markets commonly monitor advertising momentum, engagement trends, and monetisation developments as indicators of digital media conditions and brand spending.
Google Cloud
Sustained Cloud profitability is often discussed as a factor that may influence longer-term earnings expectations, though outcomes remain uncertain. Markets are expected to focus on revenue growth, enterprise adoption trends, and operating margins.
Other bets
Initiatives such as autonomous driving and life sciences, while typically smaller contributors to revenue, markets may still watch spending levels and progress updates as indicators of capital allocation and cost discipline.
Cost and margin framework
Management has previously flagged elevated capex tied to AI infrastructure, including data centres, specialised chips, and computing capacity. Traffic acquisition costs, staffing levels, and infrastructure expansion are also key variables influencing profitability.
What happened last quarter
Alphabet’s most recent quarterly update highlighted advertising trends, Cloud profitability, and continued increases in capex to support AI initiatives.
Management commentary has indicated that infrastructure spending is intended to support long-term competitiveness, while the market continues to assess the near-term margin trade-offs.
Last earnings key highlights
For reported figures and segment detail from the most recent quarter, refer to Alphabet’s latest earnings release materials, including revenue, earnings per share (EPS), Services mix, Cloud operating income, and capex commentary.
Bloomberg consensus estimates moderate year-on-year (YoY) revenue growth and higher EPS versus the prior-year quarter, with ongoing focus on operating margins given AI-related investment.
Bloomberg consensus reference points:
EPS: low-to-mid US$2 range
Revenue: high US$80 billion to low US$90 billion range
Capex: expected to remain elevated
*All above points observed as of 31 January 2026.
Market-implied expectations
Listed options implied an indicative expected move of around ±4% to ±6% over the relevant near-dated expiry window. Movements derived from option prices observed at 11:00 am AEDT, 2 February 2026.
These are market-implied estimates and may change. Actual post-earnings price moves can be larger or smaller.
What this means for Australian market participants
Alphabet’s earnings can influence near-term sentiment across major US equity indices, particularly Nasdaq-linked products, with potential spillover into the Asia session following the release.
Important risk note
Immediately after the US close and into the early Asia session, Nasdaq 100 (NDX) futures and related CFD pricing can reflect thinner liquidity, wider spreads, and sharper repricing around new information.
Such an environment can increase gap risk and execution uncertainty relative to regular-hours conditions.
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