How to Profit from a key week in Euroland

As the markets prepare themselves for another European summit, canny investors will be prepared to take advantage of the weeks events. When they analyze how to implement strategies it is always worth assessing what they know and they do not. What they do know is there will be price movements surrounding the summit as politicians use the press to restore confidence in the European debt markets. Whether the final announcement will induce this confidence or be ignored is an unknown. Therefore a trading plan should incorporate both these outcomes. It is relatively clear how a positive outcome should be played: go long equities, short treasuries, short the dollar and long commodities.  However the key to success will be picking the right way to implement these macro themes. given the expected volatility, it is essential to avoid crowded trades. These crowded trades will have numerous stops placed by traders and therefore will experience excessive volatility on an intraday basis. This means there is a higher probability of a trade held being stopped out. The answer is simple search for uncrowded trade that has the same macro catalyst. Let me give you an example: instead of going long the Euro verses the dollar, an extremely crowded trade, an alternative is to go long Canadian dollar verse Swiss Franc. This latter trade is essentially long risk, just like the Euro position. It also has the characteristic that it may benefit from Euro specific very negative news due Swiss National Bank's policy of pegging to the Euro. This kind of alternative trade can be sort in all asset classes. The next piece of the puzzle is to decide on an entry level, profit target (if used) and stop loss level. Once these have been established the size of the trade in terms of risk can be defined. The same exercise can be done for a negative reaction to the summit. In this way an investor can be armed with definitive plans to quickly react once a direction is established.