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A Traders' Weekly Playbook - energy markets to direct sentimentWe look at the scheduled economic data and US earnings this week and question if given the fluid news flow from the Middle East, these events move the dial or if geopolitics consumes the full attention and direct sentiment.
We saw a rush to hedge portfolios on Friday ahead of a darkening picture emerging in the Middle East. The situation is dynamic and it's too early to say if the hedges placed on Friday are unwarranted, but there have been pockets of positive news flow – for example, US Secretary of State Blinken saying aid will get to Gaza via the Egyptian border, and Israel opening water supply to Southern Gaza, with over 600k Gazans moving south.
A call between US National Security Advisor Jake Sullivan and Iranian officials is a development, with the US warning not to increase aggression. As Israel's ground offensive pushes into Gaza, risk and energy markets will look for headlines and actions from Iranian officials who have stated they have a duty to come to the aid of the Palestinians.
Watching crude and Nat Gas
The energy markets are the first derivative to drive broad market sentiment this week, with crude and Nat Gas leading investors to trade volatility (options), as well as classic hedges such as gold and Treasuries. Amid a backdrop of ‘higher for longer’, and the US CPI inflation gaining 0.4% in September, higher energy prices could deliver a one-way punch to sentiment.
Given market participants are generally poor at pricing risk around geopolitical developments, it's no wonder most have looked to mitigate drawdown - but at this stage, while there is a growing wall of worry to potentially climb, the probability is traders will use strength in risky assets to reduce exposures.
The probability of supply disruptions is one of the key aspects here – last week we saw the closure of Chevron’s Tamar gas field in Israel – the focus has been rerouting that gas from the Leviathan gas fields in the North of Israel – if the market feels this gas field could be impacted then could see a spike in EU NG. Many energy experts see the risk of a supply event here as fairly low, but should developments escalate on various fronts, then the market will increase the possibility of a disruption.
The bear case for risk, given the potential for a significant rally in EU NG and crude, would be where the market increases the probability of Iran curtailing the movement of LNG through the Straits of Hormuz, where notably Qatar LNG supply (20% of the global LNG market) would be impacted. Again, this seems a low probability at this stage, but that will depend on Iran’s ongoing involvement and any new sanctions placed on them.
Downside risk to the EUR
If EU NG spikes higher in the near term, then talk of a renewed energy crisis in Europe will resurface and the EURUSD could be headed to parity. As said, this probability is a lower risk right now, but when considering the risks, this is the market concern that will be monitored.
While sentiment will move around on each headline, we revisit the hedging flows seen on Friday, as traders de-risked ahead of potential gapping risk – It’s too hard to make a call on whether these hedges are partly unwound in Asia.
Where did we see the hedging flows?
• Gold rallied 3.4% on Friday - a 3-sigma move and the second biggest day since 2020. A massive 299k gold futures contracts traded, the highest since May. XAUUSD 1-month implied volatility has pushed to 15% and 1-week call volatility has increased to a 1.75 vol premium to puts – the most since March.
• The XAUUSD price closed at a 2.8% premium to the 5-day moving average, which shows the sheer pace of the intraday rally, with limited intraday mean reversion – sellers just stood aside.
• Brent crude closed 5% higher with our Brent price closing over $91 and eyeing a move back to the recent highs of $96 – WTI Crude futures saw the curve lift and go further into backwardation – this typically means the market sees a higher probability of a supply shock.
• In equities, the VIX traded to a high of 20.78%, settling at 19.3% (+2.6 vols on the day) – a VIX index at 19.3% implies daily % changes in the S&P500 of 1.2% and 2.7% on the week.
• S&P 1-month put implied vol now trades at a 5.46 vol premium to 1-month calls – This volatility ‘Skew’ is now the most bearish since May – traders are ramping up the demand for downside puts to protect in case of drawdown.
• Market breadth was ok with 46% of S&P500 stocks closed higher – there was no blanket selling, but a rotation from tech and consumer names into energy and defensive sectors - staples, utilities, and healthcare.
• While we saw some buying in petrocurrencies (NOK & CAD) but traders played defense buying into the CHF & JPY – short NZDCHF was the play of the day (-1.4%), with GBPCHF breaking the long-run range lows.
• US Treasuries rallied with 10’s closing -8bp and 30’s -10bp.
Marquee event risks for the week ahead:
• NZ Q3 CPI (17 Oct 08:45 AEDT) – the market consensus is for 1.9% QoQ / 5.9% YoY (from 6%) – NZDCHF was the biggest percentage mover on Friday following the risk aversion flows – will the sellers follow through?
• UK jobless claims/wage data (17 Oct 17:00 AEDT) – the consensus for wages sits at 7.8% (unchanged) – UK swaps place a 29% chance of a hike from the BoE at the 2 Nov BoE meeting, will the wage data influence that pricing? GBPCHF trades the weakest levels since Oct 2022 and looks likely to be sold on rallies
• US retail sales (17 Oct 23:30 AEDT) – the advanced read is expected at 0.3% mom and the ‘control group’ element at -0.1%. The retail numbers could influence market sentiment, especially if we see a big miss to expectations, with USDJPY and USDCHF the pairs most sensitive to a weaker outcome. Gold could find further buyers on a downside surprise.
• Canada CPI (23:30 AEDT) – headline CPI is expected at 4% yoy, with core CPI eyed at 4% yoy
• Fed chair Jay Powell speaks at the Economic Club of NY (20 Oct 03:00 AEDT) – the highlight of the week. Expect Powell to focus on the view that moves in the bond market are mitigating the need for the Fed to hike further.
• China Q3 GDP (18 Oct 13:00 AEDT) – consensus is 4.5% yoy (from 6.3%) – likely a trough in China’s GDP, with better levels ahead.
• China Industrial production, fixed asset investment, retail sales (18 Oct 13:00 AEDT)
• UK Sept CPI (18 Oct 17:00 AEDT) – the consensus for headline CPI is 6.6% yoy (from 6.7%) / core CPI at 6% yoy (6.2%) – a risk to manage for traders holding GBP exposures
• EU CPI (18 Oct 20:00 AEDT) – no change expected in the revision, with headline CPI eyed at 4.3% /core CPI at 4.5%. Should be a non-event for the EUR and EU equities.
• Australia employment report (19 Oct 11:30 AEDT) – the consensus estimate is for 20k jobs to have been created in September and the U/E rate unchanged at 3.7% - expect the impact from Aussie jobs to be short-lived – preference to work sell limits in AUDUSD on the day and sell into strength.
• China new homes prices (19 Oct 12:30 AEDT)
• China 1 & 5-year Prime Rate (20 Oct 12:15 AEDT) – the consensus is no change with the 1yr rate to stay at 5.2% & the 5yr rate at 3.45%
US Earnings (with the implied move on earnings) – Goldman Sachs (3.7%), Bank of America (4.6%), Tesla (5.2%), Netflix (7.5%)
Central bank speeches:
BoE – Huw Pill, Sam Woods, Swati Dhingra
ECB – Villeroy, Knot, Centeno, Guindos, Holzmann
Fed – see schedule below
TradingView Masterclass: How To Use Drawing ToolsWe continue with our Masterclass series, which we created to teach people how to get started with charting, research, and analysis. In this lesson, you’ll learn all about the Drawing Panel located on the left side of your chart. Let’s get started!
Drawing tools 🎨
There are eight categories in the drawing tool section: Cursors, Trend line tools, Fibonacci tools, Patterns, Forecasting and measurement tools, Geometric shapes, Annotation tools, and Icons. In addition, just below these categories, there are handy features that augment and optimize your research in specific situations, such as zooming in/out, measuring, and a magnet tool for selecting specific price points. Let’s analyze each of these in detail:
- Cursors: Located at the very top corner of the drawing tool section, Cursors gives you the capability to change your mouse as you move around the chart. For example, we have other variations such as the dot cursor or the simplest of all, the arrow cursor. Finally, we have an eraser tool to remove objects from the chart by clicking on them.
- Trend lines: Trend lines can be used to identify and visualize the direction of a price trend, and are sometimes used for drawing support or resistance lines as well. In this section, you can also find trend channels and pitchforks.
- Gann and Fibonacci tools: These advanced tools are often used by technical analysts and quants to locate retracements, pullbacks, measured moves, and advanced price sequences. The Fibonacci tools include retracement, extension, fans, arcs, and more. The Gann tools include box, square, and fan.
- Patterns: In this section, you’ll find popular drawing tools for mapping our complex patterns that require several different points to be drawn such as Elliott waves, head and shoulders, and impulses.
- Forecasting and measurement tools: These invaluable tools are used to make projections either long or short, study specific stats such as time or price ranges, and also give you the capability to analyze volume with VWAP and volume profiles.
- Geometric shapes: These tools are where you can find the brush tool to freely draw on your chart, but it also goes deeper than that, as there are also important shapes whereby a trader can highlight important areas on the chart with a rectangle or arrow such as accumulation or historical rebound zones.
- Annotation tools: These can be used to write notes, reminders, prices, and journal entries. These are key tools for traders who want to track their progress over time and always have specific notes attached to the chart. It also includes the ability to insert X links and images from your computer.
- Icons: Need a little more color or character on your chart? This section gives you hundreds of emojis, icons, and stickers to add to your chart. Highlight an area, add more art to your chart or spice up your creativity.
Tip: Keyboard shortcuts 🔠
Did you know that you can use keyboard shortcuts for the most popular drawing tools? To find out the command, you need to open the drop-down menu of one of the 8 drawing tool categories and you will see the command on the right side of some tools. For example:
Alt + T = Trendline
Alt + F = Fib retracement
Alt + H = Horizontal line
Alt + V = Vertical line
Alt + I = Invert chart
Alt + W = Add current symbol to watchlist
If you're a Mac user, use ⌥ instead of Alt.
Measure and zoom 📏🔎
When you use the Measure tool (the ruler icon just below the 8 drawing tool category icons), you can see at a glance how much an asset has fallen or risen in numbers, percentages, bars and days. Combined with the Zoom tool (the magnifying glass with +/- icons), you can also focus on the most important areas of the chart. For both measuring and zooming, the procedure is the same: select the tool, click on the point where you want to start measuring or from where you want to zoom, and end with another click where you want to end. You can also use the "Shift" hotkey instead of the icon. To remove a measurement, simply click on the chart.
Magnet mode 🧲
Magnet mode is a wizard that helps you to bring the drawing tools closer to the nearest price bars that you hover over with the mouse. There are 2 modes: Weak magnet and Strong magnet. This tool allows traders to perfectly connect a drawing tool to a specific price point. The current values are OHLC, meaning when Magnet mode is turned on, all drawing tools will connect to the nearest open, high, low or close value. Want to draw support lines that always connect to a specific price? Use this tool.
Stay in drawing mode 🎨
If you are going to make several drawings on the chart at the same time, you may find it useful to activate this option (pencil + padlock icon), as it will allow you to make as many drawings as you want without deactivating the selected drawing tool. Remember that you must deactivate this option to return to normal mode.
Lock all drawing tools 🛑
Once the chart has been configured, if you do not want to make any further changes, you can lock everything that has been drawn with this option (padlock icon) so that you do not accidentally delete elements in the future.
Hide/Show drawings/indicators/positions & orders 👁🗨
This option allows you to toggle the visibility of the drawings, indicators, positions & orders or even all three to make comparisons with a blank chart. The keyboard shortcut is "Ctrl + Alt + H".
Drawing sync 🔄
This allows you to synchronize the drawings of the selected charts in the current layout or in all layouts (globally). You’ll surely want to test this feature as it’s perfect for those who perform multi-timeframe technical analysis and research across multiple charts or timeframes. For example, when this tool is turned on, if you draw on one chart, all of your drawings will appear on your other charts that have the same symbol.
Delete objects 🗑
With a single click, you can delete all drawings or indicators, or even both at the same time. There are also a few other options to remove specific things on your chart. Use this tool wisely and don’t accidentally delete everything!
Show favorite drawing tools toolbar ⭐
To set up the favorites toolbar, first, you must first go to one of the eight drawing categories and click on the gray star in one of the tools. When you click on it, it turns orange and the quick access toolbar for drawing tools is created. Once you have selected all your favorites, move the favorites toolbar around so that you can use it conveniently every time you want to draw something on the charts.
That’s a wrap! We hope you found this guide valuable. We'd love to hear about your favorite drawing tool, so please share your thoughts in the comments below. Additionally, if you have any feedback or suggestions, drop us a line.
- TradingView Team
Bitcoin Q3 OverviewKey Takeaways:
- Poor quarter over quarter price performance at -11.5%, but BTC it still outperforming most asset classes including gold, treasuries, commodities, cash, and REITs year to date
- US bid that drove Bitcoin up in H1 has fully diminished at the time of writing
- Volume, liquidity, volatility, and search trends all continue to decline
- Grayscale’s discount to NAV has closed from -48% to -16% throughout the year
- Percentage of Bitcoin held by long term holders has reached an all time high of over 76%
- Bitcoin native valuation still shows BTC is in lower bounds of value
- Active addresses slightly up while transfer volume (entity-adjusted) continues to decline
Following a strong H1 price performance for Bitcoin, Q3 showed to be lackluster for BTC, down 11.5% quarter over quarter.
However, in this great chart from NYDIG, we can see that throughout 2023 YTD Bitcoin has quietly outperformed most major asset classes including large cap growth, mid and small cap growth, US and European stocks, commodities, treasuries, gold, cash, emerging markets, and REITs.
One of the biggest drivers of Bitcoin’s performance in the first half of the year was the Bitcoin ETF applications that were filed by several well-known traditional financial institutions including Blackrock and Fidelity. These filings were followed with a strong bid for BTC during US trading hours. As shown below, this US trading hour premium that was quite noticeable in March, has since fully diminished.
This is also reflected by Bitcoin’s CME futures open interest declining, which is primarily traded by traditional hedge funds, family offices, etc. Open interest refers to the number of futures contracts outstanding.
Other measures of excitement in the Bitcoin market have also shown a decline, including Bitcoin’s trading volume across spot and futures, Bitcoin’s 3-month futures basis (difference between spot and 3 month futures contracts), and can even be reflected by measures as basic as google search trends. It is safe to say that the Bitcoin market is in a period of deep apathy.
One positive trend that we’ve seen throughout the year is the GBTC discount to net asset value closing in, reflecting increased sentiment around Grayscale’s likelihood of being able to convert their current closed end trust into a spot Bitcoin ETF. Throughout 2023 the GBTC discount has closed in from -48% to just -16%.
In terms of valuation, one of the metrics that we follow most closely is the MVRV ratio. This compares Bitcoin’s current marginal trading price to its realized price, which is the cost basis of the entire network based on on-chain data. The idea of the methodology is that whenever MVRV is high, market participants are sitting with a large amount of unrealized profit and are incentivized to realize some of that profit, while when going negative means that the market in aggregate is underwater by definition. While the market is no longer in deep undervalued territory as it was at the end of last year, it is still far from overheated levels reached during the peak of 2017 and 2021.
Whether Bitcoin’s cyclicality is driven by halvings, macro forces, general behavior dynamics, or a combination of all three is up for debate; but when comparing this current cycle’s performance from its lows relative to Bitcoin’s three prior cycles, things appear to be playing out quite similarly from a time perspective.
Meanwhile, flipping over to network activity, we can see that the percentage of Bitcoin’s supply held by long term holders has reached an all time high at over 76%. This means that more than 3 out of every 4 BTC it held by long term holders. For reference, long term holders are defined as on-chain entities that have held their Bitcoin for more than 155 days, a threshold where on-chain data scientists have found the likelihood of coins being spent drops off the most significantly. This reflects the deep belief of Bitcoin’s core holder base despite crypto market wide contagion and macro uncertainty, as well as the rise of custody products.
When plotting out the amount of Bitcoin supply held by long term holders relative to short term holders, we can see the impulses that shape Bitcoin’s multi-year market cycles, as savvy investors accumulate throughout the bear market and distribute into the bull.
Another positive trend underneath the hood is the amount of Bitcoin held by on-chain entities with less than 10 Bitcoin, which not only trends up and to the right throughout Bitcoin’s entire history, has seen a large rise over the trailing year, with this quarter being no different. This is a positive trend that we’d like to see continue for the sake of Bitcoin’s supply distribution.
This quarter Bitcoin’s block height breached 800,000, a milestone reflecting that the decentralized network has continued to function as intended for well over a decade.
Bitcoin's hash rate has also set new all time highs this quarter, but with the halving on the horizon, increased competition may spell troubles for miners without competitive energy costs.
Active addresses saw a jump from 950,000 to just over 1,000,000 throughout Q3.
Meanwhile, the 7 day moving average of Glassnode’s entity-adjusted transfer volume continues to slump, down to just over $3.1 billion settled by the Bitcoin network a day.
Although still down from its July highs, Bitcoin’s public lightning network capacity jumped in Bitcoin terms throughout the last few weeks, currently sitting at 5,200 BTC. It is worth noting that this is just public lightning network capacity, and true figures may look different.
The USD denominated version of lightning network capacity offers a less favorable look, down to $140 million from its late 2021 peak of $215 million.
For the full report including all charts, click here .
Disclaimer: This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
How to Trade the Gap & GoWelcome to the final instalment of our 7-part Power Patterns series where we aim to give you the skills to trade powerful price patterns which occur on any timeframe in every market.
Last but by no means least is the Gap & Go pattern. Price gaps epitomise power and the Gap & Go is must for any active trading looking to take advantage in a spike in volatility.
We’ll teach you:
How to identify the best Gap & Go patterns
Why the catalyst behind the pattern is crucial
A simple technique for managing a Gap & Go trade
I. Understanding the Gap & Go:
The Gap and Go pattern revolves around a simple concept: market shocks take time to fully price in.
A price gap occurs when a stock "gaps" higher or lower from its previous closing price when the market opens. The price gap represents a shock and in certain circumstances traders can anticipate a continuation of price movement in the direction of the price gap.
Here are the key components of the Gap & Go trade setup:
Identify the gap: The first step is to identify stocks that exhibit a noticeable price gap between the previous day's closing price and the current day's opening price. This gap can be either bullish (a gap up) or bearish (a gap down).
Breaking structure: The price gap should break above or below a level of resistance (or support). Gaps that break key structural levels are likely to draw in a higher level of participation.
High volume: The price gap should occur on higher-than-average volume. Higher volume indicates increased participation and suggests that a significant number of market participants are actively reacting to the news or event that caused the gap.
Bullish Gap & Go:
Bearish Gap & Go:
II. Know the catalyst behind the gap:
Stock prices can gap higher or lower for a multitude of reasons and some of the reasons make better trading catalysts than others.
As a general rule, you want the gap to form on a piece of stock-specific newsflow that has recalibrated market expectations.
Remember, central to the pattern working is that the shock which caused the gap must take time to price in – hence mechanical events such as dividends and corporate actions are of no use, so too are confirmed bids.
The best catalysts for Gap & Go trades will be earnings surprises (good or bad), and a change in outlook (good or bad). In general, trading updates tend to lead to more surprises that Interim and Annual Reports, as they occur within reporting periods.
Good catalysts:
Trading update
Interim results (change of outlook)
Annual results (change of outlook)
Bid rumour
Broker upgrade / downgrade
Bad catalysts:
Ex dividend
Corporate actions
Global news event
Confirmed bid
Top Tip: For the stocks you like to trade, make sure you add a calendar alert for when the company releases Trading Updates and Interim/Annual Reports. This may help you to anticipate price gaps.
III. How to Trade the Gap & Go:
Whilst the Gap & Go pattern can be traded in many different ways and on many different timeframes. We favour getting to grips with this pattern on the hourly candle chart first. On this timeframe gaps will be clear, levels of risk can be kept relatively small, and trades can play out across one or two trading days.
Here’s how to start trading the Gap & Go on the hourly candle chart:
Entry : Wait for prices to stabilise following the opening rotations. The gap should be maintained after the first hour of trading and there should be no signs of exhaustion. Enter during the second hour of trading.
Stop-loss placement : Traders can either place a stop above (or below) the 9 period exponential moving average (EMA) or use a multiple of the Average True Range (ATR) above (or below) the entry price.
Price targets : The expectation for the Gap & Go trade setup is to catch a clean swing of price movement in the direction of the gap. For this reason, the 9EMA is a useful tool as a dynamic profit target – traders should close their position on a close back above (or below) the 9EMA. This method does not cap upside in fast moving markets but ensure discipline and allows traders to attempt to capture the ‘meat of the move’.
Bullish Gap & Go Trade Setup:
Bearish Gap & Go Trade Setup:
IV. Managing risks and pitfalls:
Be wary of opening reversals: It is important that prices stabilise and maintain the gap before entering a Gap & Go trade. On occasions, prices will gap lower only to reverse sharply during the first hour of trading. The stronger your understanding of the subtle nuances of trading around the open, the better you will be at trading the Gap & Go pattern.
Risk management: The Gap & Go pattern by definition is trading during an expansion in volatility. Therefore, it is essential that traders implement proper risk management techniques, such as position sizing and diversifying your trading portfolio.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.
When You Should NOT Trade! 11 Reasons to Take a Step BackYou have two choices each day you open your trading platform.
To trade or not to trade.
There are circumstances that will rise where you won’t trade for that day. Then there are times where you should NOT trade at all. And then there are situations where you need to avoid trading.
You know when to trade. Now here are a couple of 11 reasons to take a step back with trading.
After a bunch of knocks
After you take a couple of losses, it might feel natural to want to jump right back in.
You don’t want to lose.
You want to recoup your losses.
You want to ride the prominent trend.
You have to learn to resist this temptation. Whether you buy or sell, if the market is in a bad state or environment – you’re likely to lose your positions.
So take a step back and come back tomorrow.
The peril of revenge and impulse trading tendencies
I’ve told you many times.
Any occurrence where you are NOT following your proven strategy is deadly.
Revenge and impulse trading (to try and make up for any losses) is a dangerous path.
Not only for the day.
But it scars and sets a precedent for you to do it in the future.
In the medium term, it’s a surefire way to harm your portfolio.
Learn to recognize and control these tendencies.
Rather take a step back and come back, the next day, with a more rational and logical approach.
The absence of clear setups
If you don’t have any high probability trades that have lined up, forget trying to take a trade.
This is like sailing with a destination in mind without a compass.
Trades will come. The markets will always be there for you tomorrow.
So wait them out…
Emotional instability
Emotions when trading are a dangerous trait to have.
Anxiety, excitement, ego, fear, greed or distress can cloud your judgment.
If you’re emotionally unstable, you need to take a step back and learn to control your emotions.
Drop your risk, ‘till you no longer feel a loser or winner.
Continue backtesting until you regain your confidence.
Refrain from trading until you learn to balance your emotions.
Can’t afford it – forget it!
If the funds you’re using for trading are essential for your survival or well-being, this is a red flag.
You are going to be highly dependent and emotionally attached to your funds.
I say it over and over…
Do not trade with money you can’t afford to lose.
It creates an unhealthy pressure that can influence your trading decisions.
Don’t know it – Don’t trade it.
If you lack a solid understanding of markets, methods or money management – you’re not ready to trade.
You need to understand the above along with the market dynamics, the costs and process of instruments and how your trading and charting platform works.
Education is key here. Learn, learn, learn.
When you have less questions and more answers, then it might be a better time to take the trade.
Low probability setups
When the market is moving nowhere slowly.
Or the markets are moving wildly with high volatility – this might be a time to not trade.
The risk and uncertainty of the market is high.
And this will result in only low probability trade setups lining up.
If you really want to trade them, because you have nothing better to do – fine.
But at least risk LESS.
Risk between 0.5% to 1% of your portfolio instead of the full 2%.
When exhausted, ill or mentally unstable
Physical well-being also plays an important role.
Your mental state affects your trading performance.
If you’re not in the right mindset, consider taking a break.
Avoid trading if you’re not feeling well, exhausted, angry, or you’re feeling unstable.
Get your mind right, recover and see the markets with healthier and happier eyes.
That made sense to me :/
No clear setup
Sometimes, you might analyse the markets.
And you’ll see nothing.
Then, you’ll re-analyse and look EXTRA carefully.
You’ll look and look and look until, somehow a trade presents itself.
I’m telling you now, this is a dangerous time to take the trade.
A trade should stick out like a sore thumb (according to your strategy).
If it doesn’t, then you’re trying to see something that most likely is NOT There.
Trade based on sound, proven and strong analyses, not via imagination and hope.
During major economic announcements
This point is more related and significant to Forex traders.
If you see a high impact economic announcement, report, meeting etc…
It might be a good idea to take a step back, and skip trading for the day.
I’m talking about NFP, Unemployment, GDP, FOMC, Interest and Inflation rates etc…
Without a trading plan
A well-crafted trading plan is your roadmap.
It’s your game-plan to make a probability prediction on a potential outcome.
You need to eat, breath, shower and sleep with your trading strategy.
If you don’t have one, don’t trade until you develop a plan and are ready to stick to it.
Right so, now you now when to take a step back and NOT trade.
I’ll sum them up here for you…
After a bunch of knocks
The peril of revenge and impulse trading tendencies
The absence of clear setups
Emotional instability
Can’t afford it – forget it!
Don’t know it – Don’t trade it.
Low probability setups
When exhausted, ill or mentally unstable
No clear setup
During major economic announcements
Without a trading plan
Markets embrace the Higher-for-Longer themeIt has been a big week of central bank policy announcements. While central banks in the US, UK, Switzerland, and Japan left key policy rates unchanged, the trajectory ahead remains vastly different. These central bank announcements were accompanied by a significant upward breakout in bond yields. Interestingly most of the increase in yields has been driven by higher real yields rather than breakeven inflation signifying a tightening of conditions. The bond markets appear to be acknowledging that until recession hits, yields are likely to keep rising.
Connecting the dots
The current stance of monetary policy continues to remain restrictive. The Fed’s dot plot, which the US central bank uses to signal its outlook for the path of interest rates, shows the median year-end projection for the federal funds rate at 5.6%. The dot plot of rate projections shows policymakers (12 of the 19 policymakers) still foresee one more rate hike this year. Furthermore, the 2024 and 2025 rate projections notched up by 50Bps, a signal the Fed expects rates to stay higher for longer.
The key surprise was the upgrade in growth and unemployment projections beyond 2023, suggesting a more optimistic outlook on the economy. The Fed’s caution is justified amidst the prevailing headwinds – higher oil prices, the resumption of student loan payments, the United Auto Workers strike, and a potential government shutdown.
Quantitative tightening continues on autopilot, with the Fed continuing to shrink its balance sheet by $95 billion per month. Risk assets such as equities, credit struggled this week as US yields continued to grind higher. The correction in risk assets remains supportive for the US dollar.
A hawkish pause by the Bank of England
In sharp contrast to the US, economic data has weakened across the board in the UK, with the exception of wage growth. The weakness in labour markets is likely to feed through into lower wages as discussed here. After 14 straights rate hikes, the weaker economic backdrop in the UK coupled with falling inflation influenced the Bank of England’s (BOE) decision to keep rates on hold at 5.25%. The Monetary Policy Committee (MPC) was keen to stress that interest rates are likely to stay at current levels for an extended period and only if there was evidence of persistent inflation pressures would further tightening in policy be required.
By the next meeting in November, we expect economic conditions to move in the MPC’s favour and wage growth to have eased materially. As inflation declines, the rise in real interest rates is likely to drag the economy lower without the MPC having to raise interest rates further. That said, the MPC is unlikely to start cutting rates until this time next year and even then, we only expect to see a gradual decline in rates.
Bank of Japan maintains a dovish stance
Having just tweaked Yield Curve Control (YCC) at its prior Monetary Policy Meeting (MPM) on 28 July, the Bank of Japan decided to keep its ultra easy monetary settings unchanged. The BOJ expects inflation to decelerate and said core inflation has been around 3% owing to pass-through price increases. Governor Ueda confirmed that only if inflation accompanied by the wages goal was in sight would the BOJ consider an end to YCC and a rate shift.
With its loose monetary policy, the BOJ has been an outlier among major central banks like the Fed, ECB and BOE which have all been hiking interest rates. That policy divergence has been a key driver of the yen’s weakness. While headline inflation in Japan has been declining, core inflation has remained persistently higher. The BOJ meeting confirmed that there is still some time before the BOJ exits from negative interest rate policy which is likely to keep the Yen under pressure. The developments in US Monetary Policy feeding into a stronger US dollar are also likely to exert further downside pressure on the Yen.
This year global investors have taken note that Japanese stocks are benefitting from the weaker Yen, relatively cheaper valuations and a long-waited return of inflation. Japanese companies are also becoming more receptive to corporate reform and shareholder engagement.
Adopting a hedged Japanese exposure
Taking a hedged exposure to dividend paying Japanese equities would be a prudent approach amidst the weaker yen. This goes to a point we often make - currency changes do not need to impact your foreign return, and you can target that local market return by hedging your currency risk. A hedged Japanese dividend paying equity exposure could enable an investor to hedge their exposure to the Yen.
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
Gasoline futures portend pleasure at the pumpAmong my favorite charts this time of year is that of RBOB gasoline futures. Often as Halloween approaches, wholesale gasoline costs start coming down significantly from highs in the summer. Call it a nice treat for commuters and families around the country. As it stands, the prompt-month of RBOB is now under $2.20 - that's a fresh 10-month low should we close here.
RBOB at $2.18 means that retail pump prices should continue their recent trend lower, eventually finding the $3.20 mark if the historical premium of about $0.95 holds. It's key to remember that the price difference between the futures and the retail cost of a gallon of regular unleaded depends on a host of factors - taxes, transport costs, refiner margins, and refinery outages being among them.
I see a bit more downside ahead on the chart. Consider that, according to seasonal data from Equity Clock, RBOB tends to move lower from mid-October through early December. That could mean gas prices under $3 in terms of a national retail average by, say, Christmas. Keep your eye on the low from last December - $2.05. Another layer of possible dip-buyers could come into play near $1.95. On the upside, I see resistance near $2.45 - the range lows from this past May and June.
BUILDING A CHART "BRICK BY BRICK"What is it Renko?
Renko charts were invented in Japan, just like regular candlesticks, many years ago and they are called Renga, which means "brick". They display charts symmetrically and are effective for identifying major trends and structural support and resistance levels. Renko charts are very well suited for trend trading as they are visually appealing, making it easy to screen out noise and highlight trends easily.
Renko charts show a trend in a way that bars and candlesticks charts cannot. They are able to filter out the noise and create the sameness underlying the trend. In order to understand what a Renko is, let's remember what candlesticks show on our charts? They are the fluctuations in the price of a particular currency pair over a certain period of time: price and time.
The main difference is that Renko charts show only the change in price, neither trading volumes nor time intervals are taken into account in their development. The principle of building Renko bricks is based, as already mentioned, only on price fluctuations. In order for the chart to be displayed correctly, first of all, it is necessary to set the size of one brick. For example, many traders use a simple rule: 1 brick equals 10 pips. In other words, for a new brick/block to appear on the chart, the price must change by at least 10 points.
Candlestick chart:
Renko bars:
This is the feature of the Renko chart: it is extremely smooth and clear. All blocks have the same size. At the same time, if the price has changed by only a few points, it will not be displayed on the chart.
There are two types of brick size assignment methods: traditional and ATR-based. It measures the volatility of the asset, i.e. the values will be different at different periods of the trading period and on different time intervals. If you use this method, the value of the Renko bar should be equal to the ATR value.
Main Advantages and Disadvantages
Like any other graphical display of price changes, Renko has its pros and cons.
Advantages of Renko:
• This principle of construction allows to eliminate almost all noise from the chart as mentioned above.
• Renko shows itself perfectly in work with most indicators. Let's remember the main problem of some popular indicators - they output data with some delay (information is substituted into the formula only after the candle is closed). And since Renko is not tied to time, the indicator displays more real information as a result.
• Renko indicators show themselves perfectly in intraday trading. The trader does not need to wait for the candle to close.
The Main Disadvantages of Renko are as Follows:
• The chart does not work with most volume indicators.
• A new brick is built only when the trend increases/decreases by a certain number of points (which is equal to the size of one block). That is, the chart can remain unchanged for a long time if the market is consolidating.
• Renko chart does not show consolidation and impulse moves as seen on regular charts.
• In order to be aware of the likely measurement of trend direction, it is necessary to constantly monitor the market with other charts.
Examples
We will use a simple strategy based on the moving average with a period of 20 on the 15 minute timeframe. The sell and buy signal will be pinbar. Enter the trade when the pinbar is created near the moving average. Of course you can create your own strategy. You just need to spend some time with the chart and you will know if it will work for you or not.
EURAUD
USDJPY
GBPUSD (Sometimes Renko chart gives really beautiful and clear signals.)
Conclusion
Renko charts are quite convenient and practical because they display symmetrical candles and are effective for identifying major trends, support and resistance levels by filtering out noise. They can also be used in combination with other indicators to improve trading results. Renko charts allow you to identify various reversal patterns and see price structures in the market. However, they are mainly suitable for intraday trading.
The US Super Bubble Theory Credit for this perspective goes to u/RS3175. They shared their log Elliot waves with me and I found it so interesting I had to chart it up for myself. They've done better labelling of the wave than I have. I'll post their pic at the bottom of the page.
Firstly, what are we looking at? A logarithmic chart covering all of the SPX trading history with the entire thing fitting inside the context of the Elliott Wave Theory.
Unless you really like Elliot, I'm sure you're beyond sceptical but let me tell you a few things of note about Elliot. Elliot lost his job in the depression and started to study markets trying to work out why. This was how he devised his theory. The rally up to the high and the depression crash is a literal textbook example of the Elliot Wave.
Even if you don't think Elliot Waves work - Elliot based his wave theory on this move. This IS the original Elliot Wave.
What Elliot noticed was that this shape occurred over and over again on small timeframes and built up to a huge version on a bigger timeframe. Like Russian Dolls, but in reverse. Elliot published his theory in the 40s and died soon after. Elliot would be dead before the the depression high was broken.
In his 1940s book Elliot referred to the depression as a typically ABC correction. Implicate to this statement is a forecast of a new bull market and that bull market developing in five main waves before then entering into a bigger correction. And that was a very good forecast of what would happen over the next 25 years.
So Elliot deserves some credit. There would not have been many people who made forecasts of new highs and trending through them in 1940.
Elliot deserves a lot of credit, to be honest. Because here was the next moves.
Paul Tudor Jones famously shorted this 1987 crash and there are documentaries from 1985-1986 in which Jones and his team are using a mixture of Elliot Wave theory and matching up moves of last decade relative to the 1920s. They were running a computer program tracking correlation, finding it incredible high and betting on it.
Jones was long the rally and short the drop - And it's documented a year before the crash trade that he was using Elliot for his forecast of it. If you look up Jones forecasts at the time he was actually completely wrong. He thought it was heading into a depression. There'd be the first break and then there'd be the 1930s style downtrend.
They thought this because the correlation of price moves in their time relative to 1987 were so high (I can't remember specifically but I think it was over 80%).
I think this lends a lot of credibility to Elliot's work. Not only would his 1940's book forecast these types of 5 leg bubble moves and then sharp corrections but it was also famously used in real time to trade the rally and crash of the 1980s. If you do not think Elliot Wave works, is has! On a big scale, it has worked so far. Elliot's implied forecasts happened.
When DJI was $100 Elliot was hardly going to call DJI to $33,000 but if he'd taken the perspective that the Depression was wave 2 - what he would have forecast would be an extremely accurate forecast of what went on to happen in markets for decade after decade to come.
One would have to think if Elliot was with us today, he might well be a bear.
Here's @RS3175's chart: www.tradingview.com
The implied swings of this would match up with my Elliot bear waves forecast of 2021 (Even though we've took very different routes there).
Introduction to Relative Strength or Ratio 1-2In part one (linked) we discussed how to construct and use relative strength ratios (RS) in trading and analysis. We also discussed common errors and best use. In part two we finish that general discussion. In part three we will analyze consumer staples verses consumers discretionary and begin to discuss other ratios that I find useful.
How do spreads correct? One mistake is assuming that a spread will always be corrected by the rich security moving lower to meet the cheaper security. In actuality there are multiple ways a spread can correct. For instance, the rich market corrects lower relative to the cheaper market, the rich market declines while the cheap market rises, or the rich market remains relatively fixed while the cheap market rallies. And remember, this is all done within the context of the broader market trend.
This isn't particularly important when using spreads as informative to the business or market cycle (as I do). But if you are trading pairs (which outside of rates markets, I don't) the legs should generally be market neutral or directionally ambivalent. Along this same line, if the dollar value of the two legs is vastly different, the share counts must be adjusted to close to money neutral or the disproportionally large side of the trade will dominate.
This can also be an issue when the notional amounts of the two instruments are very different. For instance, two-year futures verses ten-year futures. Twos represent 200k notional while tens represent 100k notional. They also have far different sensitivities (duration) to a given change in rates. It should also be recognized that some sectors or ETFs are dominated by one or two very large names that skew directionality in favor of those few names. Looking for ETFs comprised of equally weighted components will mostly eliminate this issue. For instance equal weighted consumer staples (RSPS) verses equal weighted consumer discretionary (RSPD).
It's extremely important that you know what you are measuring. A good example is the change in the ratio between investment grade bonds (LQD) and high yield bonds (HYG). A quick glance at the chart might suggest that High Yield is weakening relative to Investment Grade. The easy conclusion would be that fundamentals in the high yield sector were deteriorating and investors were exiting HYG. While fundamentals are modestly deteriorating in HYG more quickly than in LQD, the dominant driver is the difference in duration between the two sectors. This can be seen when running the ratio between ten year and three-year treasuries and comparing it to LQD/HYG.
Many analysts smooth the RS line with moving averages. This is particularly useful when adjusting for the higher volatility of shorter time frames. This isn't my preference. First, I prefer to use longer periods (particularly weekly) in my analysis. Second, while averages are useful, they aren't an essential part of my own analysis toolkit. But there is value and moving averages can be used on spreads just as they are used on the underlying securities.
Finally, ratios can provide tremendous insight into economy and market cycles, for instance when, after a long RS decline, copper begins to strengthen relative to gold, the industrial economy may be entering the early stage of recovery. Or when consumer staples RS inflects higher relative to consumer discretionary it's likely that the outlook for the consumer, and by extrapolation the economy, is weakening. In future parts we will discuss and illustrate several of these ratios.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Would the Middle East Conflict Push Gold and Oil Prices Higher?NYMEX: WTI Crude Oil ( NYMEX:CL1! ), COMEX: Micro Gold Futures ( COMEX_MINI:MGC1! )
Over the weekend, military conflict in Gaza between Israel and Palestine shocked the world. I condemn violence against civilians and pray for the victims and their families.
In the following paragraphs, I will discuss how the prices of strategically important commodities, namely gold and crude oil, might respond to the eruption of a global crisis.
Firstly, let’s look back into the recent past for those crises arising to a global scale. In the last five years, the world has witnessed three major crises of very different natures:
• US-China Trade Conflict: from January 2018 to January 2020, the world’s two largest economies imposed import duties to each other in a series of escalating actions and retaliations. A major event occurred on September 18, 2018, where President Trump added 10% tariff on nearly all Chinese-made products. The US-China trade conflict forever altered the global supply chain, with its impact being felt till today.
• Covid-19, the most severe pandemic in a century, from its outbreak in January 2020 to 2021. A big event that sparked market fear occurred on February 2, 2020, where the US imposed travel restrictions on incoming air passengers.
• Russia-Ukraine Conflict: the first military conflict in Europe since World War II, from February 14, 2022, till now.
Secondly, let’s measure how gold and WTI crude oil responded to these crises. For my analysis, I denote the day before Event Day as T0, where we may find last market prices before the impact hit. Event Day will be T+1, and then 1-week after (T+7), 1-month after (1M), 3-month after (3M), all the way through 1-year after (1Y). Here are what I found:
US-China Trade Conflict
• Gold spot price (T0) = $1,201.90 per Troy Ounce
• Price changes by time: -0.1% (T+1), +0.1% (T+7), +2.3% (1M), +3.3% (3M), +8.6% (6M), +11.6% (9M), +25.0% (1Y)
• Comment: Trade tension between US and China could push the global economy into a recession. Gold, a safe-haven asset, saw its market value growing 25% in a year.
• WTI crude oil spot price (T0) = $69.86 per barrel
• Price changes by time: +1.2% (T+1), +6.3% (T+7), +4.3% (1M), -27.7% (3M), -14.2% (6M), -24.6% (9M), -8.4% (1Y)
• Comment: High tariff raised the price consumers had to pay, hence reducing demand. Crude was down 28% three months after the all-in tariff was imposed.
Covid Pandemic
• Gold spot price (T0) = $1,574.75 per Troy Ounce
• Price changes by time: -1.0% (T+1), -0.1% (T+7), +2.6% (1M), +8.5% (3M), +24.4% (6M), +21.2% (9M), +16.6% (1Y)
• Comment: We saw the biggest stock market selloff in March 2020. Gold price was down initially as stock traders needed to raise money and meet margin calls. However, a flight to safety eventually took place, and gold was up 24% in six months.
• WTI crude oil spot price (T0) = $53.09 per barrel
• Price changes by time: -5.0% (T+1), -11.9% (T+7), -77.1% (1M), -61.4% (3M), -23.1% (6M), -31.1% (9M), +0.9% (1Y)
• Comment: Rapid Covid outbreaks stroke fear. Lockdowns put global activities to a pause. The pandemic wiped out oil demand, with WTI falling 80% in a month. April 20, 2020 made history as oil price of the expiring contract went below zero. As storage cost more than selling price, traders were willing to pay others to take away the crude for free.
Russia-Ukraine Conflict
• Gold spot price (T0) = $1,854.60 per Troy Ounce
• Price changes by time: -2.5% (T+1), -2.5% (T+7), +6.5% (1M), -1.8% (3M), -2.8% (6M), -5.0% (9M), +5.0% (1Y)
• WTI crude oil spot price (T0) = $91.25 per barrel
• Price changes by time: +4.7% (T+1), +5.3% (T+7), +30.7% (1M), +12.90 (3M), +1.1% (6M), +0.6% (9M), -17.2% (1Y)
• Comment: A major military conflict in Europe significantly raised the global risk level. Gold, the safe-haven asset, and crude oil, an energy commodity critically important in wartime, both went up in the first month, by 6.5% and 30.7%, respectively.
• However, the impact was short-lived. On March 16, 2022, the Fed begin hiking interest rates, which has become the driving force in global market. Impact from Russia-Ukraine became a secondary factor and sat in the back burner.
To sum up the above examples, I observe that gold prices usually go up in the aftermath of a global crisis. Crude oil has a mixed bag of reactions. If a crisis results in economic recession and a consequential reduction in oil demand, oil prices would go down. However, in the case of a major war, oil price would go up due to its strategic importance.
Review: Event-driven Strategy focusing on Global Crises
In June 2022, I introduced a three-factor pricing model for commodities futures:
Commodities Futures Price = Intrinsic Value + Market Sentiment + Crisis Premium
Intrinsic Value is the baseline cash price of the underlying commodities, determined by available supply, demand, inventory, shipping costs, and factors affecting these variables.
Market Sentiment indicates if investors are bullish or bearish. Whether speculative investors place more money on the long side or the short side affects the price of a futures contract. Market sentiment could be either positive or negative, resulting in a price premium or a discount of the intrinsic value.
The new Crisis Premium factor captures “Event Shock” during a global geopolitical crisis.
Previous trade example:
Russia and Ukraine together accounted for 28% of global wheat export. Wheat price shot up by 75% following the start of the conflict. I designed a Long Strangle options strategy on CBOT Wheat futures, and simultaneously bought out-of-the-money (OTM) call and put options. A “risk-on” outcome could push wheat price higher, making the calls more valuable, where a “risk-off” outcome would pull wheat price back down, making the puts in-the-money (ITM).
Trading Opportunities with Micro Gold
Since the September FOMC meeting, gold prices suffered a 6.3% drawdown, sending the futures price from $1,969 to $1,845. Friday settlement price was nearly 9% below the yearly high.
On the one hand, high-interest money market funds beat out non-interest-yielding gold investment; on the other hand, strong dollar raised the cost of gold purchase by foreign investors. As a result, gold prices have been under pressure.
However, my analysis illustrates that gold prices could rise in response to geopolitical conflicts. Since its founding, Israel had five major wars with its Arab neighbors. We do not know whether this time it would be contained as a regional conflict or spark a chain reaction of a global war. By the intensity of how it started, it doesn’t seem like a short one.
To express a view of rising gold prices, we could consider a long position in COMEX Micro Gold Futures ( AMEX:MGC ). The December contract (MGCZ3) was settled at $1,845. Each contract has a notional value of 10 troy ounces, or $18,450 at market price. CME Group requires an initial margin of $780 per contract.
Hypothetically, if gold futures go back up to $2020, its yearly high, the $175 ($2020-$1845) price increase would translate into $1,750 for a long futures position. If gold price goes down instead, each dollar of decline would result in a loss of $10 per contract.
Alternatively, we could consider the newly launched Micro Gold Options. A Long Strangle Options Strategy, where simultaneously buying OTM calls or puts, could be deployed if we expect a big move in gold price, but not certain of its direction.
Trading Opportunities with WTI Crude Oil
Since June, WTI crude oil first staged a nearly 40% rise, from $67 going to $93. However, it has seen a 9% drawdown since the Fed meeting on September 20th.
A major military conflict in the Middle East, the world’s most important oil producing region, threatens to interrupt oil supply and push up oil price. If the conflict is escalated to involve major oil exporting nations, the situation could be dire.
To express a view of rising crude price, we could consider a long position in NYMEX WTI Futures ( NYSE:CL ). The December contract (CLZ3) was settled at $83.18. Each contract has a notional value of 1,000 barrels, or $83,180 at market price. CME Group requires an initial margin of $6,186 per contract.
Hypothetically, if WTI futures go up above $100, which we saw from February to July 2022 in the first months of the Russia-Ukraine conflict, the $17 price increase would translate into $17,000 for a long futures position. If crude oil price goes down instead, each dollar of decline would result in a loss of $1000 per contract.
Similarly, the newly launched Micro WTI Options could express a view that a big move in oil price is expected, without knowing its direction.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
People want to earn but not learnThe issue is everyone wants to make money (well, maybe not everyone) but nobody wants to take the time to learn how to do it properly. This is NOT a sales pitch by the way! it's FACT!!
People often ask why I bash influencers so much, it's mainly for this reason. Majority of noobs, come into trading expecting to make a fortune. If only it was that easy, every man and his dog would be a professional trader.
Over the years, I have talked about things like Bots and AI that are programmed to make you money - think logically, if again it is this easy wouldn't the founders go to the bank, loan $10million based on their results and just not bother selling and shilling to customers and retail. NOBODY wants to provide customer service, especially to the world's population.
Unfortunately, regardless of the market. Trust me if you stick around long enough you get to see this behaviour in Forex, Commodities, Stocks and more recently crypto with a splash of A.I.
The story goes pretty much the same way. "man (or woman) hears about an opportunity to make money through a thing called trading, they do their research which leads to the old You of Tube and that leads to "Lamborghini promises from kids with fake watches, drawing random trendlines on 3 minute charts" There's often a "sign-up" bonus if you click their shill link.
So let's get this straight, they make money on watch time and those links you click.
The reason I chose fish in the image above, is that most people have memories that last about 2 seconds. Mark Cuban said "everyone is a genius in a bull market" Algorithms work and influencers claim to be experts with 3 months of experience. Easy to show in a market only going one way.
Trading is hard enough, let alone having the ability to lose money from scams.
If a trading algorithms promises a 90% win rate - run and don't buy it.
==============================================================
There are fundamental things to do and you can deploy to get you off on the right track. Firstly think of the obvious. 90% of new traders lose 90% of their money in only 90 days. Hence a 50% sign-up bonus whereby you think you gained "free cash" often has small print that you can't access it until you lost your original investment.
Affiliates tend to get 25% or more of the deposit - the exchanges know full well, your about to lose your money.
Second thing I try to emphasis for newer traders, is that you need to treat trading as a profession. You wouldn't watch a video and expect to be a doctor, you also wouldn't buy an algorithm or Artificial Intelligence software and expect to become New York's latest Hot Shot Lawyer You see where this is going?
There is no secret sauce, no silver bullet and no short cuts.
If you want to trade and make money trading, you need the basics. You need to keep doing the basics well and evolve your mindset more than a strategy. Areas that will really help you include proper risk management. If your willing to be sat in negative 20, 30 or even 50% equity positions. This won't take you long to lose your entire trading pot.
Instead risking 1-2% with a risk strategy of 2 -1 or greater. it's a slower game, but it keeps you playing the game. If you take a 3 or even a 4 reward trade with only 1 risk. For every time you are right, it's giving you 4 times as much as when you are wrong.
Imagine winning 20% of your trading days and still being at breakeven... simple 1:4 ratio.
This is only one small aspect to keep in mind.
As I mentioned above, if strategies or software is pitched with high percentage win rates - run. You need to understand the market acts differently and past results do not indicate future performance. Everyone is a genius in a bull market, remember.
You do not need to go looking for the silver bullet. These strategies do not exist, instead spend the time working on strategies that can be consistent in various market conditions. This is no small task, your strategy might identify entries in a counter trend differently than it would in say a ranging market.
The answer to resolve this, is BACKTESTING Don't just run your strategy on replay mode, although @TradingView has a great little tool for this.
Spend the time to look at things such as "repainting" this means that when your strategy triggers an entry, does it disappear and reappear. If so, do some manual back testing. Then Dig deeper and analyse the type of market condition it was more profitable or less profitable. This could be things like "I lose more on a Monday, compared to other days" or when the market goes sideways, It triggers too many trades.
I've written several articles here on pure education. Here's a few examples.
In this post (worth clicking on) it has a whole bunch of lessons inside.
Think of trading like you would a university course, there's plenty to learn but you can have some fun along the way!
Stay safe!
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
An Overview of Stablecoin ArchitectureCrypto stablecoins are a type of cryptocurrency that aims to maintain a stable value relative to a target asset, such as a fiat currency or a commodity. This is achieved through a variety of mechanisms, including fiat collateralization, algorithmic stabilization, and hybrid models.
Stablecoins offer a number of advantages over traditional cryptocurrencies, including:
- Price stability: Stablecoins are designed to maintain a stable value, making them more suitable for use as a medium of exchange and store of value.
- Lower volatility: Stablecoins are less volatile than traditional cryptocurrencies, which makes them more attractive to risk-averse investors.
- Global reach: Stablecoins can be used to send and receive payments anywhere in the world with low fees and fast transaction times.
- Programmability: Stablecoins can be programmed to execute smart contracts, which enables new and innovative financial applications.
There are generally four main types of crypto stablecoins:
- Fiat-collateralized stablecoins: These stablecoins are backed by fiat currencies, such as the US dollar or the euro. The issuer of the stablecoin holds a reserve of fiat currency equal to the value of all outstanding stablecoins. This type of stablecoin is considered to be the most stable, but it is also the most centralized.
- Crypto-collateralized stablecoins: These stablecoins utilized native cryptocurrencies as their collateral and are minted once a user locks up native crypto worth 150%+ worth of the newly minted stablecoin into a Collateralized Debt Position (CDP).
- Algorithmic stablecoins: These stablecoins use algorithms to maintain their peg to a target asset. The algorithm typically adjusts the supply of the stablecoin based on its price. This type of stablecoin is more decentralized than fiat-collateralized stablecoins, but it is also more complex and riskier.
- Hybrid stablecoins: These stablecoins combine elements of both fiat-collateralized and algorithmic stablecoins. For example, a hybrid stablecoin might be backed by a basket of assets, including fiat currencies and cryptocurrencies. This type of stablecoin offers a balance of stability and decentralization.
Despite their promise, crypto stablecoins face a number of challenges, including:
- Technology risk: Because stablecoins can be designed in numerous ways to optimize for different things, technological risk associated with these nascent financial products is ever-present. It is important to carefully evaluate each stablecoin separately based on its design and intentions.
- Centralization risk: Some stablecoins are highly centralized, meaning that the issuer has a great deal of control over the stablecoin. This could (and has) lead to censorship or abuse.
- Regulation: The regulatory landscape for stablecoins is still evolving. Governments around the world are developing regulations to address the potential risks posed by stablecoins, such as money laundering and terrorist financing.
Crypto stablecoins have the potential to revolutionize not only the crypto industry but also the traditional finance (TradFi) sector as well. They offer a number of advantages over traditional financial systems, including lower fees, faster transaction times, and global reach.
Navigating the cryptocurrency landscape demands both risk tolerance and a strategy to weather the often-turbulent market conditions. Enter stablecoins, digital assets designed to provide investors with a semblance of stability amid the inherent volatility associated with crypto assets. Thanks to their combination of stability, liquidity, and speed, stablecoins have become an unignorable aspect of nearly all crypto sectors.
The essence of a stablecoin's value stability stems from its underlying collateral. Unlike conventional cryptocurrencies, which can see drastic price swings within short time frames, stablecoins operate with a pegged value. This peg, often linked to established fiat currencies like the USD, provides a predictable and stable asset value. The actual value of the stablecoin remains in equilibrium with the fiat currency to which it is anchored, eliminating the wild price fluctuations common in the crypto domain.
Stablecoins seamlessly merge the frictionless attributes of blockchain transactions with the robustness of well-established currencies like the USD. This fusion brings forth an unparalleled blend of efficiency and reliability, all while never having to leave the on-chain blockchain environment. For crypto traders, this capability ensures that they remain shielded from potential market downturns without having to constantly transfer assets between crypto and traditional banking systems.
Because of these attributes, stablecoins have emerged as an indispensable cornerstone of the crypto economy. Their influence spans a myriad of functions, from trading to lending, and even asset management. Despite the bear market in crypto prices in 2023, interest in stablecoins has remained considerably more stable.
Although stablecoins, as a whole, are gaining prominence in the cryptocurrency world due to their promise of stability, it is crucial to understand that their structures differ, and these distinctions can significantly impact their reliability and use cases. The most straightforward (and popular) mechanism to ensure stability in a stablecoin is to back it on a 1:1 ratio with fiat currency, usually held in a bank. This methodology, chosen by market frontrunners like USDT and USDC, guarantees that for every coin in circulation, there's a corresponding dollar in reserves.
However, while such a system is relatively simple to implement, it does not solve the issues around counterparty risk and censorship resistance that other crypto assets look to solve. The use of fiat as collateral means that the stablecoin inherits the vulnerabilities associated with traditional currencies. Additionally, relying on a centralized entity to hold reserves necessitates trust in that institution's credibility, deviating from the decentralized ethos that cryptocurrency enthusiasts often advocate for.
Not all stablecoins tie their value to fiat currencies. Some stablecoins, like PAXG, choose a different route and are collateralized by commodities, such as gold. This offers an alternative store of value that's theoretically more tangible and resistant to inflation compared to fiat.
For cryptocurrency investors and users, understanding stablecoins' nuances is paramount. With an impressive market capitalization and wide-ranging applications, stablecoins have solidified their place in the crypto ecosystem. But as centralized, fiat-backed stablecoins continue to dominate the market, new entrants and models challenge the status quo. As the stablecoin market diversifies and evolves, continuous research and vigilance are essential for those aiming to utilize these instruments effectively.
For the full 40-page report, click here .
Storms are Brewing: Is your Portfolio Weatherproof? Risk strikes when least expected. Optimism peaks before a downturn strikes. Chart below shows remarkable spike in articles mentioning soft-landing before recession hits. Human brain is engineered to think linearly.
Anything non-linear tricks the mind. Recession is non-linear which muddles up investor estimates of recession, its timing and impact.
Count of Soft-landing Articles & US Recession (Source: Bloomberg )
The US Federal Reserve in its fight against inflation has lifted rates by an unprecedented 525 basis points since the start of 2022.
Yet the American economy, US corporations, and the US consumer are remarkably resilient. Non-Farm Payrolls last week came strong. When the Fed is tightening its levers to slow the economy, nothing seems to stop its rise. What explains this anomaly?
Three words. Monetary Policy Transmission.
Monetary policy transmission takes time, lulling many to believe that consumers and corporates are resilient. When in fact, they are yet to face the consequence of constrained credit markets which will manifest itself in myriad ways from reduced availability of financing, high cost of funding, and rising bankruptcies, just to name a few.
This paper is set in two parts. First part describes monetary policy transmission. Part two dives into storms forming in the horizon. The paper concludes with a hypothetical trade set-up using CME Micro S&P 500 Options to defend portfolios from deepening polycrisis.
Despite the risk narratives, a soft landing may still be possible. However, the combined impact of Fed’s hawkish stance, rising geopolitical tensions, continuing auto workers strike, tightening of financial conditions, and elevated oil prices & yields renders the likelihood of a soft landing, super slim.
Narratives around the soft-landing aside, CTAs have dumped nearly USD 40 billion worth of S&P 500 futures positions marking the fastest unwind on record over the last two weeks as reported by Goldman Sachs.
PART 1: MONETARY POLICY TRANSMISSION
Monetary policy operates with long and unpredictable lags. Monetary Policy Transmission is the process through which a Central Bank’s decisions impact the economy and the price levels. The flow chart below schematically describes the downstream impact of quantitative tightening.
Monetary Policy Transmission Takes Time (Source: ECB )
Changes made to official interest rates affect markets in diverse ways and at distinct stages. Central bank's interest rate decisions impact the markets in the following seven ways:
1. Banks and Money Markets: Rate changes directly affect money-market rates and, indirectly, lending and deposit rates.
2. Expectations: Expectations of future rate changes influence medium and long-term interest rates. Monetary policy guides expectations of future inflation.
3. Asset Prices: Financing conditions and market expectations triggered by monetary policy cause adjustments in asset prices and the FX rates.
4. Savings & investment decisions : Rate changes affect saving and investment decisions of households and firms.
5. Credit Supply: Higher rates increase the risk of borrower default. Banks scale back on lending to households and firms. This may also reduce consumption and investment.
6. Aggregate demand & prices: Changes in consumption and investment will change the level of domestic demand for goods and services relative to domestic supply.
7. Supply of bank loans: Changes in policy rates affect banks’ marginal cost for obtaining external finance differently, depending on the level of a bank’s own resources/capital.
The mechanism is characterized by long, variable, and indefinite time lags. As a result, it is difficult to predict the precise timing of monetary policy actions on economy and inflation.
For some sectors, monetary policy transmission can take as long as 18 to 24 months. In other words, the full force of the Fed’s 525 basis points spike since 2022 will not be felt until early 2024. Added to that, the Fed may not be done hiking yet.
Probabilities of Rate Anticipation in Prospective Fed Meetings (Source: CME FedWatch Tool )
PART 2: STORMS ARE FORMING
Not one but three major storms are brewing in parallel, namely (1) Worsening Geo-politics, (2) US Sovereign Risk Fears, and (3) Tightening Financial Conditions. One or more of them could unleash havoc, sending financial markets into a tailspin.
1. WORSENING GEO-POLITICS
Adding to the geopolitical conflict between Russia and Ukraine, Hamas attack on Israel over the weekend has elevated geo-political tensions. If counter strikes escalate to a wider region impacting Strait of Hormuz, then oil prices could spiral up sharply, sending shocks across financial markets.
Oil prices lost steam last week. That doesn’t guarantee lower prices. Eerily, this month marks 50-year anniversary of oil emergency in 1973 which led to oil prices spiking 3x back then.
The US Strategic Petroleum Reserves are at a 40-year low. The reserves are at 17-days of consumption compared to an average of 34-days consumption observed over the last thirty years.
2. US SOVEREIGN RISK FEARS: The US government is facing multiple challenges of its own. The government narrowly avoided a shutdown and has kicked the problem can down the road only by six weeks. Long before investors take relief, the shutdown fear will resurface again.
Add to that is the rising US debt levels. With a debt burden of USD 33 trillion, the government debt is forecasted to reach USD 52 trillion by 2033.
With rates remaining elevated, a substantial chunk of US Government debt will be directed towards interest payments. Is there a risk of US debt default?
To compensate for that risk, bond yields are climbing. The 10-Year treasury yields rose to 16-year high of 4.6%. With jobs market remaining solid, the data-driven Fed might have to keep the rates higher for longer.
The futures market implies a probability of 42% for a rate hike during the Fed’s December meeting. Any further hikes can tip the recovering housing market back into crisis due to exorbitant mortgage rates. High yields also cost it dearly for firms to borrow.
3. TIGHTENING FINANCIAL CONDITIONS: Dwindling liquid assets, resumption of student loan repayments, stringent lending practices atop heavy debt burden on US Corporates are collectively weighing down on investor sentiments.
Student Loan Repayments: After 3.5 years of loan servicing holidays, millions of students will resume student loan repayments. Bloomberg estimates that these repayments can shave 0.2% to 0.3% off US GDP.
Depleted Savings: Strength of the US Consumers will be put to stress tests. Extra savings from pandemic stimulus checks have been depleted to below pre-pandemic levels for low-income categories. Consumer strength could turn into weakness in the coming weeks.
Inflation Adjusted Liquid Asset Holdings by Income Group (Source: US Fed and Bloomberg Calculations )
Stringent Lending Standards: The Fed’s Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices points to 50% of the banks imposing stringent criteria for commercial & industrial loans. Lending conditions are at levels last seen during 2008 global financial crisis. Impact of this will be felt in Q4 when business will be stifled from access to funds.
Tightening Standards of Commercial & Industrial Loans (Source: July 2023 SLOOS Survey )
Corporate Debt Burden: Years of extremely low cost of funding have tempted US corporates into a debt binge. With rates rising, the debt burden is getting heavier on corporate balance sheets, cash flows, and profitability as reported by Bloomberg. Leverage ratios are rising. Interest coverage ratios are falling. Average Free Cash Flow to Debt ratios are plunging.
Debt burden amid rising rate environment is hurting US Blue Chips (Source: Bloomberg Intelligence )
HYPOTHETICAL TRADE SETUP
Against the backdrop of these risks, this paper posits a hypothetical back spread with puts to gain from sharp index moves. Unlike a long straddle, this option strategy delivers (a) outsized gains when markets plunge, and (b) limited downside risk if market remains flat or rises despite the risks.
This strategy involves selling one unit of at-the-money puts to finance purchase of two units of out-of-the-money puts. This strategy can be executed either for net positive premium or net negative premium depending on the choice of strikes.
Specifically, the hypothetical trade illustration is built around CME Micro Monthly S&P 500 Options expiring on 29th December 2023 (EXZ3). The strategy involves (a) selling 1 lot of EXZ3 at a strike of 4400 collecting a premium of USD 655 (131.16 index points x 1 lot x USD 5/index point), and (b) buying 2 lots of EXZ3 at a strike of 4300 paying a premium of USD 950 (95.041 index points x 2 lots x USD 5/index point).
The hypothetical trade involves a net debit of USD 295 (58.922 index points * USD 5/index point). This trade breaks even when S&P 500 (a) falls below 4141, or (b) rises above 4400.
Pay-off from Back Spread with Puts Trade Strategy (Source: CME QuikStrike )
Summary pay-off from this trading strategy is illustrated in the table below.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
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Is Stock Market Recovery Possible? Trading Idea for 05/10/2023A unique situation has arisen in the market where the reward for the risk associated with stock investments is nearly equivalent to the yield on 10-year US government bonds. The prices of debt securities are steadily declining, and only a substantial collapse in the stock market can restore demand for them.
Barclays' analysts share a similar viewpoint. However, there are currently conditions for a stock market recovery, especially if the unemployment rate in the US exceeds analysts' expectations.
Therefore, our focus today is on the SPY ETF, which invests in companies comprising the S&P 500 index.
On the D1 timeframe, resistance has formed at 430.30, with support at 420.12. If quotes consolidate above 425.01, this will likely trigger the beginning of an upward trend. Additionally, the price has moved closer to the 200-day Moving Average, which typically results in a rebound.
On the H1 timeframe, the short-term target for the price increase is around 435.80, while in the medium term, it could reach 445.75.
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ES1! & SPY: Happy October!Hopefully you all love Halloween and fall.
Because I am obsessed and I went as extra as extra will allow.
And you can expect this to continue until next month :p.
Let's hope for a straight forward week this week. This would be for SPY to come up and reject 431. Remember, we have been rejecting that 431 repeatedly (which is our bearish condition on the 6 month) and have had 4 successful closes below it:
If we break over it, its fine really. Because, as promised, we have 6 month levels on ES1! now and we can take a look at those here:
Bearish condition on ES1! on the month is at 4486. So we can go back up there, we just need to reject there. Let's just hope it keeps it to the point with a rejection of 431. Its going to be bullish on Monday, probs agree and with the news catalyst of a government deal, its probably going to be excitable. But yeah, we need to just see rejection at 431 to see some continuation to the downside. It really should be swift, the move to the 6 month low targets, and then we see bounce and chop. It's usually how it plays out. But it could, technically and realistically, just chop its way down there.
The velocity in tanking is not the same degree we had in 2022 where it was straight down, most of the time. There is a bit more bouncing here.
Another thing of note, we missed the 99 on ES1! last week, which generally means the sentiment is overwhelming in one direction or another. In this case, that would be bearish. The last time ES1! missed a bullish 99, it tanked dramatically the next week, so of course be cautious here. I don't necessarily think that will happen this week, but it is a possibility.
ES1!'s price targets for the week are listed in the chart above, for SPY, here they are:
99 this week is at the bullish condition on the week. So let's see what we get.
That's it for now, I am bearish but obviously its contingent on us rejecting or staying below 431 on SPY. So let's see what happens with that, then we go from there.
For Monday, I am bullish provided we open below 431.
Will update as we see more!
Yen Drops Below 150 Per Dollar - Exercise Caution in TradingThe Japanese yen has recently dropped below the critical threshold of 150 per dollar, primarily due to mounting concerns regarding intervention measures. In light of this situation, I strongly urge you to exercise caution and consider pausing yen trading until further clarification is obtained.
The sudden decline in the yen's value has raised concerns among market participants, as it suggests the possibility of intervention by the Japanese government or central bank. Intervention refers to deliberate actions taken by authorities to influence their currency's exchange rate, typically through buying or selling large amounts of their own currency in the foreign exchange market. Such interventions can have a profound impact on the currency's value and create significant volatility in the market.
Given the uncertainty surrounding the current situation, it is prudent to reassess our trading strategies and ensure that we are not unnecessarily exposed to potential risks. Therefore, I strongly recommend that you temporarily halt yen trading until we receive further guidance or clarification from reliable sources regarding any potential intervention measures.
In the meantime, I encourage you to closely monitor the latest news and market developments related to the yen. Stay informed about any official statements or actions from the Japanese government or central bank, as these can provide valuable insights into the future direction of the currency. Additionally, consider diversifying your portfolio to reduce reliance on yen-based assets until the situation stabilizes.
Please remember that our primary objective is to protect our investments and mitigate risk. By exercising caution and temporarily pausing yen trading, we can better position ourselves to navigate the current market uncertainties and make informed decisions when clarity emerges.
If you have any questions or require further guidance, please do not hesitate to reach out to me or our dedicated support team. We are here to assist you and ensure that you have the necessary information to make well-informed trading decisions.
