286 · Jason Shapiro - Overcrowded Trades: What Everyone Else is Not Seeing
Chat With Traders
Deep Dive
What is Jason Shapiro's trading philosophy?
Jason Shapiro's trading philosophy is based on countertrend trading, focusing on market positioning and sentiment rather than price. He identifies overcrowded trades and goes against the crowd, looking to get short when participants are too long and vice versa.
How does Jason Shapiro identify overcrowded trades?
Jason Shapiro identifies overcrowded trades by analyzing positioning data, particularly through the Commitment of Traders (COT) report. He looks for extreme levels of long or short positions among speculators, which indicate potential reversals.
What was Jason Shapiro's most successful trade in the last few years?
Jason Shapiro's most successful trade in recent years was the Japanese yen trade in July, where he identified record levels of crowded short positions and profited from the subsequent squeeze higher.
Why did Jason Shapiro avoid trading the stock market in 2023?
Jason Shapiro avoided trading the stock market in 2023 because the positioning data had returned to neutral, meaning there was no clear edge for his countertrend strategy. He prefers to trade when there is extreme positioning on one side.
What is the yen carry trade, and how does it impact markets?
The yen carry trade involves borrowing money cheaply in yen with low interest rates and investing it in higher-yielding assets like stocks. When the yen strengthens, traders unwind these trades, leading to a sell-off in risk assets and a sharp move in the yen.
How does Jason Shapiro define a 'news failure' event?
A 'news failure' event occurs when the market fails to react as expected to negative or positive news. For example, if a market is expected to go down on negative news but instead closes higher, it signals that the market is already positioned in a way that negates further selling pressure.
What is Jason Shapiro's risk management strategy?
Jason Shapiro's risk management strategy involves risking a fixed percentage (70 basis points) on each trade. He sets his stop loss at the low of the day of the news failure event and takes profits when the positioning data returns to neutral.
Why does Jason Shapiro believe that the current bull market is 'hated'?
Jason Shapiro believes the current bull market is 'hated' because many investors, both older and younger, have been burned by previous market crashes and are cautious, even as the market rallies. This contrasts with past bubbles where there was widespread euphoria.
What does Jason Shapiro consider the biggest risk to the financial system?
Jason Shapiro considers the biggest risk to the financial system to be the potential failure of monetary policy, particularly if the Fed resorts to printing money during a recession and the markets do not respond positively. This could signal the end of the current monetary system.
Why does Jason Shapiro avoid overthinking the markets?
Jason Shapiro avoids overthinking the markets because he believes that his trading process, based on positioning and news failure events, already provides a positive return expectation. Overthinking can lead to overcomplication and reduce the effectiveness of his strategy.
- Jason Shapiro's contrarian trading approach
- His feature in Jack Schwager's book
- Over 30 years of trading experience
Shownotes Transcript