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Create No Code Auto Trading Bot with Tradingview and OKXHello Everyone,
In this tutorial, we learn about how to create simple auto trading bot using tradingview alerts and OKX exchange built in integration mechanism.
Few exchanges have come up with this kind of direct integration from tradingview alerts to exchanges and as part of this tutorial, we are exploring the interface provided by OKX.
In this session, we have discussed
🎲 Preparation Steps
Preparing tradingview account
Webhooks are only available for essential plans and plus.
Enable 2FA in your tradingview account.
Preparing your OKX account
Create OKX account, and we prefer you do the initial tests under demo account before moving to active trading account.
Bots created in demo account will not appear in the active trading account. Hence, when switching to active account, you need to create all the setup again.
🎲 OKX Tradingview Interface Features
What is supported
Auto trading based on strategy signal
Custom signals - Enter Long, Exit Long, Enter Short, Exit Short
What is not supported:
Stop/Limit orders
Bracket orders/ Complex execution templates
🎲 Weighing Pros and Cons of Using Direct Interface rather than Third party integration tools
Pros
Latency is minimal as per our observation
Easy Integration with Tradingview and Pinescript Strategy Framework and no coding required
You save cost on third parties and also avoid one hop.
More secure as your data is shared between less number of parties.
Cons
No native support for Stop/Limit orders
Mean Reversion Trading Strategies and IndicatorsMean reversion is an important concept in financial markets, offering traders the opportunity to capitalise on price fluctuations around a long-term average. This article unpacks mean reversion and explores three key trading strategies augmented by specific indicators to fine-tune entry and exit points.
Understanding Mean Reversion
Mean reversion is a theory suggesting that asset prices and historical returns eventually revert to their long-term mean or average level. This concept is widely used in the equity markets, commodities, and forex trading. The idea is that an asset that has deviated significantly from its historical average is likely to revert back. Traders often use mean reversion trading systems to take advantage of these deviations.
Mean reversion in forex is particularly fascinating. Currency pairs tend to oscillate around a central point over time, offering plenty of trading opportunities. The concept relies on two core assumptions: that the market is stable over the long term and that temporary disruptions will self-correct. However, it's essential to remember that mean reversion is not foolproof. Market conditions change, and an asset can maintain its deviated state longer than one might expect.
Exploring Mean Reversion Trading Strategies
Now that we've established a foundational understanding of mean reversion, let's delve into three distinct reversion to the mean trading strategies. If you’d like to follow along, head over to FXOpen’s free TickTrader platform to access the tools discussed here.
10-Period RSI Mean Reversion
The 10-period RSI Mean Reversion trading strategy involves the Relative Strength Index (RSI), a momentum oscillator that measures the speed and change of price movements. For this strategy, traders typically set the RSI to a 10-period setting and establish overbought and oversold limits at 80 and 20, respectively. By focusing on shorter intervals, this strategy aims to capture quick reversals in price.
Entry
Traders may look for the RSI to reach or exceed 80 (overbought) or drop to 20 or lower (oversold). After reaching these levels, they often wait for the RSI to move back below 80 or above 20 before entering a trade.
Stop Loss
A common approach is to set the stop loss just beyond the entry point to minimise potential losses.
Take Profit
The trade is generally closed when the RSI reaches the midpoint of 50. This often indicates that the asset has reverted to its mean, fulfilling the primary objective of the strategy.
Fibonacci Retracement and Value Area Reversion
This strategy combines Fibonacci Retracement levels with a Fixed Range Volume Profile (FRVP) to identify potent entry and exit points. Fibonacci Retracement is a tool that identifies potential levels where price may reverse during a pullback. Here, traders focus on three key retracement levels: 38.2%, 50%, and 61.8%.
The Fixed Range Volume Profile, on the other hand, reveals where the highest volume of trades occurred within a specific range, indicating a value area. Traders look at the largest node as an area of value, often serving as a strong support or resistance level.
Entry
Traders often look for an established trend, typically entering positions in the same direction.
After a breakout, they commonly wait for a pullback to a Fibonacci level that aligns with the value area determined by FRVP.
Stop Loss
Stop losses are usually placed just beyond the next closest Fibonacci retracement level to safeguard against unforeseen reversals.
Take Profit
Profits are often taken at the most recent significant high or low, generally, the one that initiated a reversal.
VWAP and MACD Reversion: A Day Trading Mean Reversion Strategy
In this strategy, the Volume Weighted Average Price (VWAP) is used alongside the Moving Average Convergence Divergence (MACD). VWAP serves as a benchmark, calculating the average price based on volume at each price level. This indicator is often employed for intraday trading due to its responsiveness to immediate price and volume changes.
MACD, on the other hand, is a trend-following momentum indicator that helps signify potential price reversals. Due to the intraday nature of the VWAP, this strategy is particularly well-suited for day trading, enabling traders to capitalise on fairly quick, mean-reverting price movements.
Entry
Traders often monitor for situations where the price appears visually overextended from the VWAP, either above or below it.
A MACD crossover serves as the cue for possible entry, indicating that the price may revert toward the VWAP.
Stop Loss
Typically, stop losses are set just beyond the most recent swing point to mitigate risk.
Take Profit
The position is commonly closed when the price reaches the VWAP.
In the event that the price doesn’t touch the VWAP before the trading day ends, trades can be closed just before the day finishes when the VWAP is reset.
Additional Mean Reversion Indicators
While the strategies outlined above are popular among traders, there are other indicators worth considering in the realm of mean reversion.
Bollinger Bands: These are volatility bands that expand and contract around a moving average. When the price reaches the upper or lower band, a mean-reverting move could be imminent.
Moving Averages: Simple moving averages (SMAs) and exponential moving averages (EMAs) are often used in mean reversion and algorithmic trading. They help identify the 'mean' price level around which an asset is expected to fluctuate.
Stochastic Oscillator: This momentum indicator compares an asset's closing price to its price range over a specific period. An overbought or oversold reading suggests that a mean reversion may be likely.
CCI (Commodity Channel Index): This indicator measures the deviation of an asset’s price from its average price over a specific time period. CCI can be used to detect overbought or oversold markets.
MFI (Money Flow Index): This is a volume-weighted RSI, indicating overbought and oversold conditions. When used in conjunction with other indicators, it can provide additional validation for mean reversion trades.
The Bottom Line
In sum, mean reversion trading strategies offer intriguing avenues for traders to exploit price movements that deviate from long-term averages. While the strategies discussed are robust, they are by no means exhaustive. To delve deeper into these and other trading strategies, consider opening an FXOpen account, where you’ll gain access to a host of advanced tools and analytics to aid in your trading endeavours. Good luck!
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Risk, reward, and our absolutely EPIC Black Friday deal World-class climbers require the best equipment, gear, and preparation - they can't scale the most difficult mountains without anything else. For the world' best traders, they too must have access to the best tools and features. To climb to the top of modern markets, great research is a prerequisite.
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Economic Lessons From 2023We entered 2023 with a pessimistic consensus outlook for U.S. economic performance and for how rapidly inflation might recede. As it happened, there was no recession, and personal consumption posted sustained strength. Inflation, except shelter, declined dramatically from its 2022 peak.
The big economic driver in 2023 was job growth. Jobs had recovered all their pandemic losses by mid-2022 and continued to post strong growth in 2023, partly due to many people returning to the labor force.
When the economy is adding jobs, people are willing to spend money. The key for real GDP in 2023 was the strong job growth that led to robust personal consumption spending. For 2024, labor force growth and job growth are anticipated by many to slow down from the unexpectedly strong pace of 2023, leading to slower real GDP growth in 2024.
And there is still plenty of debate about whether a slowdown in 2024 could turn into a recession. Followers of the inverted yield curve will point out that it was only in Q4 2023 that the yield curve decisively inverted (meaning short-term rates are higher than long-term yields). It is often cited that it takes 12 to 18 months after a yield curve inversion for a recession to commence. Using that math, Q2 2024 would be the time for economic weakness to appear based on this theory. Only time will tell.
The rapid pace of inflation receding in the first half of 2023 was a very pleasant surprise. Indeed, inflation is coming under control by virtually every measure except one: shelter. The calculation of shelter inflation is highly controversial for its use of owners’ equivalent rent, which assumes the homeowner rents his house to himself and receives the income. This is an economic fiction that many argue dramatically distorts headline CPI, given that owners’ equivalent rent is 25% of the price index.
Once one removes owners’ equivalent rent from the inflation calculation, inflation is only 2%, and one can better appreciate why the Federal Reserve has chosen to pause its rate hikes, even as it keeps its options open to raise rates if inflation were to unexpectedly rise again.
The bottom line is that monetary policy reached a restrictive stance in late 2022 and was tightened a little more in 2023. For a data dependent Fed, inflation and jobs data for 2024 will guide us as to what might happen next. Good numbers on inflation or a recession might mean rate cuts. Otherwise, the Fed might just keep rates higher for longer.
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
By Bluford Putnam, Managing Director & Chief Economist, CME Group
*Various CME Group affiliates are regulated entities with corresponding obligations and rights pursuant to financial services regulations in a number of jurisdictions. Further details of CME Group's regulatory status and full disclaimer of liability in accordance with applicable law are available below.
**All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
New Kids on the Block: ETF StyleI recently released 2 libraries and an indicator that revolved around ETFs, their composition and their performance. Creating these libraries required me to do quite a bit of research on which ETFs are currently dominating the US market and which may be more obscure. It also lead me to discover that quite a few new ETFs with pretty powerful holdings have hit the market as recently as last month ($BCLR for example).
So I thought I would take the time to go over some of the new kids on the block, the ETFs that is, and also shed some light on potentially some ETFs that you may not have heard of but may be of interest to you. After 2022, I shifted my self-managed portfolios into mostly ETFs so this topic is something that is particularly interesting for me, hope it is for you too!
So let us go over the new release ETFs and whether they are a Buy, Sell or Maybe:
Blackrock Large Cap Core ETF (AKA NASDAQ:BLCR )
Hitting the market in October of this year and being managed by a big-name investment firm (BlackRock), this ETF is something you may want to seriously consider. With its biggest holding in MSFT, it does well in diversification. If you look at the chart above, you will see the breakdown by sector.
It is a very well-rounded ETF, though 27% of its sector holdings are tech, there is admirable diversity, especially through financial services, consumer cyclical, communication services, and Energy.
As it is new, we can’t see its performance over the past 252 trading days (1 trading year), but we can see that since it hit the market it has seen over 7% growth, likely due to its heavy investment into pretty relevant stocks.
This is on my 💰BUY💰 list, as I see this as being a hybrid of SPY and QQQ but at a better entry cost.
First Trust S-Network Streaming & Gaming ETF (AKA AMEX:BNGE )
This one hit exchanges in January of 2022 and is based on streaming and gaming services. Its biggest holding is in NFLX and NTES (an internet technology company based on various online services including streaming), we can see by its holdings there is quite a hefty holding in some pretty big streaming and gaming companies, including Nintendo ( OTC:NTDOY ), Sony ( NYSE:SONY ), Disney ( NYSE:DIS ) and EA ( SET:EA ).
Its past trading year history boasts a net gain of 36.54%. This is on my 🤷maybe🤷 list, as I am not big into the gaming sector and don't follow it too closely fundamentally.
Direxion Moonshot Innovators ETF (AKA AMEX:MOON )
This one came to exchanges in November of 2020 and, contrary to its name, has yet to seemingly reach the moon. This is an ETF I have mixed feelings about, as its largest holding is in Nikola Corporation. If you don’t remember, the Nikola Corporation, the corporation that was producing those electric trucks, got involved in a scandal when it turned out the prototypes that they displayed had no real engine and their stock dropped dramatically after that came to light:
This issue was only resolved in 2022 after extensive court proceedings. This resulted in the indictment of the founder Trevor Milton but not the company itself. That said, they have made progress and actually do have operational trucks that have been shipped and delivered, as of researching this they have sent out a total of 44. However, unfortunately, these trucks have, quite literally, been blowing up in flames. So yeah… not great. And probably not a great stock to lead your ETF with, but to each their own.
That said, the other holdings are quite admirable and not generally held on other ETFs. For example, they have a large holding on Robinhood ( NASDAQ:HOOD ), Coinbase ( NASDAQ:COIN ), and Snapchat ( NYSE:SNAP ). And yes, these companies also have their own problems and scandals to go along with them.
Because of the aforementioned, it's not generally an ETF that would interest me as it is predominately very speculative companies, but you can decide for yourself if it's holding interest you and your tastes of investments. It may not be a bad one to have a small holding in, in case NIKOLA or COIN ever get their stuff together. For me, this would be on my ❌SELL ❌ list.
U.S. Global Jets ETF (AKA AMEX:JETS )
If you are a huge aviation fan, this may be an ETF for you! While its pay year of trading has not been great, largely because the aviation industry is still feeling the shockwave effect of a post-COVID world, it does hold some very solid airline stocks such as American Airlines ( NASDAQ:AAL ), Delta ( NYSE:DAL ) and Air Canada ( TSX:AC ). It's in a spot where it has me considering a potential position myself, but I will let you be the judge of it! Overall, this would be on my 💰BUY💰 list.
U.S. Global Sea to Sky Cargo ETF (AKA AMEX:SEA )
Hitting the markets in January of 2022, SEA has not been a great performer thus far. I am not all that familiar with the Cargo or marine sector as this has never been a sector I have personally traded and thus, I have no exposure to reviewing earnings, performance, and fundamentals of various shipping companies, but a brief look at some of its holdings show that these are pretty well-established shipping companies. Take this anecdote with a grain of salt, however, as I have not fully reviewed earnings releases or their SEC filings as I have with companies like BA, NKLA, etc.
It is definitely worth checking out, for the sole reason that marine cargo and transportation will remain the gold standard for large material shipping for many years to come. But definitely do your due diligence before investing! This is on my 🤷 maybe 🤷 list.
Xtrackers Semiconductor Select Equity ETF (AKA NASDAQ:CHPS )
Coming to markets very recently, July of this year to be exact, this is another ETF that deals with the semiconductor and chip sector. Before, your options were SOXX and that was pretty much it, so this is a breath of fresh air for the chips industry.
As it hasn’t been on the market for very long, I can’t really speak to its performance, but if we look at its biggest holdings, it's quite a decent list. Its biggest holding is in Intel ( NASDAQ:INTC ), with Nvidia ( NASDAQ:NVDA ) and Qualcomm ( NASDAQ:QCOM ) coming in 3 and 4 respectively. SMH and MU are also in the top 10 holdings. If we draw a comparison to SOXX’s holdings, here we are:
There is a bit of diversity between the top 10 holdings, so if you are big into the chip sector, this is definitely a must-add, in my opinion. It is on my 💰BUY💰 list.
Procure Space ETF (AKA NASDAQ:UFO )
A very interesting ETF that bases itself with stocks that deal with space. I would absolutely love this ETF if it didn’t do the same thing as the MOON ETF, leading its holding with a company that should have gone bankrupt ages ago (aka Sirius XM). If you overlook that fact, the rest of the companies on this list are great and ones that I actually know a bit more intimately. NYSE:GRMN is a top one for me, as well as GSAT and IRDM. These are companies I really like. While AMEX:GSAT is kind of a non-mover, they are undergoing some major restructuring and redesigning of their infrastructure which investors are gaining increasingly more excited about. Same for $IRDM.
The rest of the holdings are well-established companies, such as Viasat ( NASDAQ:VSAT ) and Dish ( NASDAQ:DISH ). Despite the Sirus XM thing, this is on my 💰BUY💰 list.
U.S. Consumer Focused ETF by iShares (AKA AMEX:IEDI )
Hitting the markets in March of 2018, this is an ETF with its predominant holdings in consumer cyclicals. Its largest holdings comprise large retail names, such as Amazon ( NASDAQ:AMZN ), Walmart ( NYSE:WMT ), Costco ( NASDAQ:COST ), and Target ( NYSE:TGT ), as well as many others!
Its performance over the past trading year (252 days) has been approximately 6%. It's definitely an ETF I would keep my eyes on. It is on my 💰buy💰 list for the future as well. I just want to see how this giant monthly bear flag plays out 😉.
First Trust Transportation ETF (AKA NASDAQ:FTXR )
Last but not least, we have FTXR. It’s a bit older, having hit the markets in 2016, but still new enough to include in this list. With its largest holdings being Divided between UNP, GM, UPS, F, and TSLA, it has a pretty solid holding in the transportation sector. Some notable mentions are a 4.33% holding in PCAR and a 4.21% holding in FDX.
This is on my maybe list. I do like the holdings in Ford, UPS, FDX, and PCAR. It's definitely worth an addition to your watchlist, in my opinion!
Concluding Remarks
And that concludes the list of newly released ETFs that you may not have heard about! Hope you enjoyed reading. If you are interested in checking out the indicator, which allows you to:
👉 See the breakdown of ETF by top 10 holdings and by sector,
👉 Search for which ETFs hold your favorite tickers in their top 10,
👉 Search for ETFs by Sector and
👉 Search for ETFs by Interest
You can click here to check it out!
Thanks for reading and, as always, safe trades!
A Traders’ Playbook; 2024 a year of central bank easing With a new set of weekly candles to assess, we see the USD looking weak, with the greenback having fallen on the week against all G10 and EM currencies, bar the COP - the risk seems skewed for further downside in the buck.
EURUSD closed above the former rising trend (drawn from the March lows) and targets 1.0960 (the 61.8 fibo of the July-Oct sell-off), with USDCHF looking to pull below 0.8850, which would keep the bearish trend intact. GBPUSD closed above the 200-day MA, where a break of 1.2500 takes us to 1.2560. USDSEK was the big percentage mover last week, and we look ahead at the Riksbank meeting where a 25bp hike is touch and go.
USDCNH is starting to trend lower too, and eyes a break of 7.2000. The PBoC has made it clear that their preference is low volatility, and they have done a sensational job is just about killing off any pulse in the yuan - after trading a tight range since mid-August, will they now step in front of a weakening USD?
The fate of the USD resides in the data flow and Fed speakers – so far there has been limited pushback to the 100bp cuts priced for 2024, with US swaps pricing the first ‘live’ FOMC meeting for May. Many will see this as too soon and too punchy, but the market is betting against higher-for-longer, which is also the case in Europe, the UK, Canada, NZ, and others, with the market seeing the ECB kick off an easing cycle in developed economies in April.
Central bank easing is a theme that will be front of mind for 2024, with some debate as to why the markets are discounting such easing. The central thesis is that with absolute conviction inflation is heading towards target, labour markets cooling sufficiently and growth at far more subdued levels the need to take rates to a more equilibrium state and out of restrictive is the fundamental reasoning.
It’s when the market discounts front-loaded cuts that we see easing as a function of recession hedges, where a central bank would need to get policy rates below inflation.
If we look at forward rate differentials – we look at the difference between 1 or 2-year EUR forward rates and that of the US forward rates – we have seen no real skew for US rates to move more aggressively on a relative basis, which would justify the USD sell-off. However, clearly, the US CPI resonated, and the idea that the right-hand side (i.e., USD data is more exceptional than other countries) of the USD smile theory is losing USD support.
One could argue that if we work off pure central bank divergence – which has been a profitable way to capture moves in exchange rates throughout 2022 and 2023 – that 2024 could be the year of the JPY. Life is rarely that simplistic though.
In equity land, we see consolidation in US indices, and with one eye on moves in the US Treasury market as a guide, where a downside break in the 10yr of 4.37% would be helpful, we subsequently watch for an upside break of 16k in the NAS100 – Nvidia’s earnings could be key here. It’s the EU equity bourses where the momentum is right now, with the GER40, EUSTX50 and SPA35 in beast mode and swing traders will be looking for a pullback to initiate new longs into December.
I was positioned for outperformance in Chinese/HK indices but that has been a poor call and I have moved to the sidelines on that, waiting for more constructive flows to be seen.
The marquee event risks for the week ahead:
OPEC meeting (26 Nov) – the alliance meets in Vienna and with Brent crude in a steep downtrend, and having fallen 20% from the Sept highs, there have been headlines of imminent additional supply cuts to be seen at this meeting. As we head into the weekend meeting, traders with crude exposures need to consider the potential gapping risk in crude.
UK Autumn Statement (22 Nov) – Chancellor Hunt offers the autumn statement with talk the govt will focus heavily on imposing sanctions for people who claim benefits and encourage people to take up employment. It feels unlikely this will a vol event for the GBP, although traders will keep an eye out for any tangible fiscal measures that could stimulate growth.
Nvidia 3Q earnings (report 21 Nov after-market) – the market looks for another big earnings report from the best performing US stock in 2023 – the market prices Nvidia’s implied move (derived from options pricing) at 7.1% on the day. The market will go into the report positioned for an upside surprise relative to consensus, with expectations that we see data centre sales of $15b. There will be a strong focus on guidance on the impact of US restrictions on AI chips to China and how this could impact data centre sales for 2025/26. The bulls will want to see a fourth consecutive share price increase on quarterly earnings and will naturally want to see a break of $500, which has kept a lid on the share price on seven occasions.
US Thanksgiving holiday (23 Nov) – cash equities are closed, and futures have partial settlement.
Economic data to navigate:
• China 1 & 5-year Prime Rate decision (20 Nov 12:15 AEDT) – while the market is on edge for further policy easing – notably for a further cut to banks Reserve Ratio Requirements – few expect a cut to the prime rate, with the 1-year rate expected to remain unchanged at 3.45% and the 5-year rate at 4.2%.
• RBA meeting minutes (21 Nov 11:30 AEDT) - after hiking by 25bp I am not sure we’ll learn a lot of new intel from the minutes and traders are better listening to speeches from the RBA governor Bullock as the greater prospect of being an AUD vol event.
• US leading Index (21 Nov 02:00) – the consensus is we see the leading index fall 0.7% in October – some have seen this data point as a precursor to recessionary conditions, so a big downside miss may impact the USD.
• Canada CPI (22 Nov 00:30 AEDT) – the economist’s consensus is we see headline CPI at 3.1% yoy (from 3.8% yoy) and core CPI at 3.6% (3.8%). The expected drop in inflation justifies Canadian rates pricing with the first cut being priced for April 2024 and 64bp of cuts being priced over the coming 12 months.
• US FOMC minutes (22 Nov 06:00 AEDT) – after the recent Fed chatter, notably from Cleveland Fed president Loretta Mester (a known hawk), who failed to push back on market expectations for rate cuts and suggested the debate is now how long to keep rates restrictive, it’s hard to see the FOMC minutes being too much of a market mover.
• US Durable Goods (23 Nov 00:30 AEDT) – the market looks for -3.2% (from 4.6%). With US Q4 GDP running around 2.2%, a weak print here could see GDP Nowcast models being revised lower, which may see US bond yields pull lower and promote USD selling.
• UK S&P Global manufacturing and services PMI (23 Nov 20:30 AEDT) – the consensus is for manufacturing to come in at 49.9 and services PMI 50.4 – A services print below 50 may see bond yields lower, which would drag down the USD. A Services print above 51.0 would revisit calls of US exceptionalism and promote USD buyers.
• EU HCOB manufacturing and services PMI (23 Nov 20:00 AEDT) – the consensus is for manufacturing PMIs to improve modestly at 43.4 (from 43.1 in October), although that is still a woeful outcome. Services PMIs are eyed at 48.1, again a slight improvement from 47.8 – the EUR will be sensitive to the services print, where EU swaps markets price the first cut by the ECB in April and 86bp of cuts over the coming 12 months.
• Sweden’s Riksbank meeting – it’s a lineball call on whether the Swedish central bank hike to 4.25%, with swaps pricing 11bp of hikes and 50% of economists surveyed by Bloomberg calling for a 25bp hike. We could see some vol in the SEK, so watch exposures. USDSEK has been in a strong downtrend, so the market is likely positioned long of SEKs going into the meeting.
• US S&P Global manufacturing and services PMI (25 Nov 01:45 AEDT) – the market looks for the manufacturing index to come in at 49.9 (from 50.0) / and services at 50.3 (50.6) – we should see the USD, and risky assets more sensitive to the services print, and certainly if we see the index below 50.0 – the level where we see growth/decline from the prior month.
Central bank speakers
BoE – Gov Bailey speaks (21 Nov 05:45 AEDT)
ECB – 10 speakers – Schnabel (22 Nov 04:00 AEDT) and Lagarde (22 Nov 03:00) get centre focus
RBA – Gov Bullock speaks (Monday 10:00 AEDT & Tuesday 19:35)
How did the price of gold change from 1970 to 2023?Hello everyone
How did the price of gold change from 1970 to 2023?
And the events that affected him
The price of gold has continued to rise over the past five decades, from an average of $36 in 1970 to $2,080 in 2023.
Despite gold's status as a long-term investment commodity, its value has declined several times. The periods of highs and lows coincided with difficult political and economic developments - investors' demand for gold as a safe haven rises when there are problems in the global economy, and weakens when things are going well.
What can we learn from the past to be able to make predictions for the future?
Gold is priced on a standard scale per ounce.
1 ounce = 31.1 grams
1970 - The average price of an ounce of gold is $36
In August 1971 - US President Richard Nixon abolished the dollar's peg to gold. The dollar was no longer converted into gold at a fixed value, $35 per ounce, and gold could be traded at fluctuating market prices
In December 1974 - For the first time in 40 years, American citizens were allowed to keep gold bullion and coins.
In June 1980 - Gold rose to a record high of $850 per ounce, as investors turned to the precious metal amid rising inflation due to strong oil prices, Soviet intervention in Afghanistan, and the impact of the Iranian Revolution.
From 1982 to 1988 - Fluctuations in global currency exchange rates, increasing concern about the US trade deficit and banking problems, and debt in Third World countries factor into gold fluctuations between $300 and $490.
From 1989 to 1991 - this period witnessed conflict in the Arabian Gulf, the collapse of the Soviet Union, a decline in the role of gold as a safe haven, and weak economic growth in general throughout the world.
From 1992 to 1996 - Gold remained relatively stable.
In August 1999 - The price of gold fell to its lowest level at $251.70 when central banks began reducing their gold reserves and mining companies sold gold in the futures markets to protect them from the decline.
In February 2003 - The price of gold rose after it was considered a safe haven in the period leading up to the war in Iraq.
December 2003 – Gold surpassed $400, reaching levels at which it was last traded in 1988. Gold was increasingly purchased by investors as a hedging tool for their investment portfolios.
November 2005 – Spot gold trading exceeded $500 for the first time since December 1987, when it reached $502.97.
May 12, 2006 - Gold prices rose to $730 per ounce as investors turned to commodities as a result of the weak dollar, stable oil prices, and political tensions over Iran's nuclear ambitions.
On June 2, 2008 - Spot gold exceeded $850.
March 13, 2008 – Trading in the benchmark gold contract exceeds $1000 for the first time in the US futures market.
On March 17, 2008 - the price of spot gold reached its highest level at 1030.80 per ounce.
On September 17, 2008 - the price of spot gold jumped nearly $90 per ounce - a single-day record, as investors sought a safe haven amid turmoil in the stock market.
February 20, 2009 – Gold once again rose above $1,000 per ounce to reach $1,005.40 during the financial crisis.
December 1, 2009 – Gold exceeds $1,200 per ounce for the first time as the dollar declines.
On May 11, 2010 - Gold recorded a new high, exceeding $1,230 per ounce after investors resorted to gold as a safer investment haven with continued concerns about debt contagion in the Eurozone.
September 17, 2010 – Gold reached a new record high exceeding 1,282 per ounce, driven by a weak dollar and economic uncertainty.
September 2011 – The Eurozone debt crisis prompts investors to shift money into gold, causing its price to rise to 1,923 per ounce.
From 2012 to 2015 - Gold continued to decline as fears of a full-blown banking crisis eased after 2011, with gold reaching $1,094 in August 2015.
In June 2016 - Brexit and its unknown consequences fuel a gold rush. Gold rose to its highest level in two years at $1,358.
June 2017 – Gold reaches a year-high of $1,294 before falling back to an average of $1,200.
On August 3, 2020, gold rose to the highest level in its history at 2,075 per ounce, as concerns about the economic repercussions of the coronavirus outbreak prompted investors to rush towards safe havens.
Gold prices witnessed a record high with the start of the Russian invasion of Ukraine, exceeding the threshold of $2,070 per ounce.
Over the course of five days in March 2023, three small-to-mid-size U.S. banks failed, triggering a sharp decline in global bank stock prices and a swift response by regulators to prevent potential global contagion. Silicon Valley Bank (SVB) failed when a bank run was triggered after it sold its Treasury bond portfolio at a large loss, causing depositor concerns about the bank's liquidity. Silvergate Bank and Signature Bank, both with significant exposure to cryptocurrency, failed in the midst of turbulence in that market.
The escalation in Gaza directly affected gold, with prices rising by about $2007 per ounce, which reflects investors’ demand for safe havens.
I hope you got some knowledge from this!
if you have any questions let me know...
Thanks
trading movies and what they can teach about financial marketsthese incredible films bridge a gap between entertainment and education, providing insight about the global markets and what often goes by in the background and yet help keeping the boredom away.
1.THE WOLF OF WALL STREET - dir: Michael Scorsese. Dec 25, 2013 (crime/comedy)
this movie follows and reflects on the life of Jordan Belfort and his rise to wealth as a stockbroker selling penny stocks and blue chip stocks living his best life to his epic downfall caused by financial fraud, drugs. This film can teach traders how to sell any product and the importance of confidence in the trading/investing world.
2.THE BIG SHORT - dir: Adam Mckay. Dec 11, 2015 (comedy/drama)
this film is based on the true-life events of the 2008 financial crash which began with cheap and lax lending standards that fueled a housing bubble. The film follows 3 stories of Michael Burry(hedge fund manager), Jared Venett(trader) and Geller and Shipley(investors) who made a fortune from the housing market decline. This movie teaches traders/investors that unpredictable events take place in the financial markets and the psychological pressures that investors experience and understanding the complexity of various financial instruments and importance of risk management.
3.WALL STREET - dir: Oliver Stone. Dec 11, 1987 crime/drama
this crime film follows a junior stockbroker Bud Fox who enters a different league in the trading game getting involved in stock manipulation and insider trading while trying not to get caught doing all this to impress his supervisor Gordon Gekko. this movie teaches traders that greed is not always bad as MR.Gekko says himself
4.INSIDE JOB - dir: Charles Ferguson. Oct 8, 2010 documentary/drama
this is a similiar film as "the big short" but this one is distinctive as its a 5 part series bases on the 2008 financial crisis shows traders also on corruption and more in-depth look on how everything started, the bubble, the actual crisis and all that resulted after.
5.BOILER ROOM - dir: Ben Younger. Feb 18, 2000 thriller/drama
this film follows a student who drops out of college and also runs an illegal casino, with pressure to make tons of wealth a appease his father, he gets to work for a CEO of an investment company which is known for its shady dealings of pump and dump of unprofitable stocks with encounters from the feds using him to get to the big fish of the operation. This movie teaches traders about the importance of confidence and to increase it is to want, do and be more.
6.TOO BIG TO FAIL - dir: Curtis Hanson. May 23, 2011 drama
this is another film about the 2008 financial crisis based on a book of the same title by Andrew Ross. As the title says the movie focuses on the 'too big to fail" corporations and how their shortcomings can criple the global financial system. It gives an inside look on how Washington and Wall street try to tackle this and save the financial system. This film teaches traders the significance of stability and balance.
7.ENRON: THE SMARTEST GUYS IN THE ROOM - dir: Alex Gibney. April 22, 2005
his is one of the best scam/fraud movies of all time following the fall of Enron corporation showing the cracks on the wall of most modern big corporation scams. the movie shows how top executives of the firm's collapse through illegal activities like increasing stock prices and selling the at very high prices causing a crash in the market. This film however teaches traders/investors that greed has no honor and that a plan is needed for any kind of longevity and success to happen.
8.FLOORED - dir: James Allen Smith. Sep 1, 2009 documentary/indie film
this is documentary film that shines light on Chicago based traders trading on the Chicago Board Of Operations exchange floor. This documentary focuses on the trill and excitement and high energy paced work force of a trading floor. it gives retail traders an inside look on the kind of emotions traders on a floor go trough and how the rise of computer based trading has affected the livelihood of traders working in trading floors.
please do comment on your favorite trading/investing movies
put together by : Pako Phutietsile (@currencynerd)
SPX Oil Gold and Yields - Weekly preview 4400 is the level bulls want to hold on any pullback for spx, whether it comes next week or not is hard to say. IWM and DJT are not confirming an upward bias on the weekly chart yet, so it's possible they are saying something that most are not hearing. Gold and Silver both hard to tell what's going to happen right now, so waiting I'm for a confirming move up or down. Oil is at strong technical support, thus the bounce today. I think it goes higher, but it needs to take out 80 for the bulls to start gaining control. TYX (Yields) will probably get to the gap area near 5 at some point soon....
Good luck and have a wonderful weekend
Learning from Warren Buffett's 7 Major Investment ErrorsWarren Buffett's name resonates with success, particularly through investments in renowned companies such as Coca-Cola, American Express, Apple, Bank of America, Moody’s, Kraft Heinz, and more. He stands as a global icon, amassing a wealth exceeding USD 100 billion. Beyond his investment prowess, Buffett generously imparts his wisdom to millions worldwide. Among his many famous quotes, one emphasizes the importance of learning from others' mistakes.
Warren Buffett's 7 Major Investment Errors
I) Dexter Shoe Company
- In 1993, Warren Buffet's Berkshire Hathaway acquired Dexter Shoe Company, a decision he later regretted as his worst deal. Buffet made multiple significant mistakes in this acquisition.
- The first error was misjudging Dexter's potential. Berkshire bought Dexter due to its high return on capital employed but failed to consider the competitive threat posed by cheap shoes from countries like China. Buffet acknowledged this oversight in 1999, highlighting the increasing challenge for domestic producers in the face of a market flooded with 93% of 1.3 billion pairs of shoes purchased in the United States coming from abroad.
- The primary lesson here is the necessity of assessing a company's durable competitive advantage before investing. Durable competitiveness has transitioned from a good-to-have factor to a must-have for any business.
- Buffet's second mistake was financing the Dexter Shoe Company purchase with Berkshire Hathaway stock valued at 433 million dollars, rather than using cash. A single share of Berkshire's Class A stock was approximately USD 15,000 in 1993. Today, it is valued at USD 517,000.
- This decision didn't just cost Berkshire shareholders USD 433 million for a company that eventually became worthless; it resulted in a staggering loss of 15 billion dollars for Berkshire's shareholders.
- The crucial lesson derived from this experience is never to sacrifice successful investments to make risky bets.
II) Tesco
- Tesco, a British grocery chain, became a concern for Berkshire Hathaway when the company's ownership stake exceeded 5% by 2012. By 2013, signs of trouble at Tesco became evident, leading Berkshire to reduce its stake to 3.7%, amounting to an investment of nearly 1.7 billion dollars.
- In the subsequent months, Tesco's stock plummeted by nearly 50% due to declining sales, heightened competition from discount retailers, and an accounting scandal that attracted scrutiny from the UK's financial regulators.
- Buffett's mistake lay in hesitating to sell Tesco stocks despite recognizing these troubling signs. This delay resulted in a loss of approximately USD 444 million for Berkshire.
- The crucial lesson from this situation is the importance of conviction when making selling decisions. Just as one should invest with conviction, it is equally vital not to hold onto a stock if confidence in its performance wavers .
III) Energy Future Holdings
- Warren Buffett, known for seeking advice from Charlie Munger in his investment decisions, openly admitted a significant mistake in his 2013 letter. He invested USD 2.1 billion in bonds of Energy Future Holdings Corporation, banking on rising natural gas prices to boost the competitiveness of the coal-based business and yield profits.
- Unfortunately, natural gas prices plummeted from their 2007 levels, leading to substantial losses for Energy Future Holdings. The company declared bankruptcy in 2014, and Berkshire Hathaway sold the bonds at a loss of USD 873 million in 2013.
- Buffett acknowledged his error in assessing the transaction's gain-loss probabilities, emphasizing the importance of seeking a second opinion from trusted advisors or partners when making significant decisions.
- This incident highlights two essential lessons. Firstly, it underscores the risks associated with predicting market trends, whether in natural gas, oil, gold, or individual stocks. Secondly, it emphasizes the perilous nature of investing in high-yield "junk" bonds. While conglomerates like Berkshire Hathaway can absorb losses from such high-risk endeavors, retail investors face financial disaster in the event of a default. Hence, it is crucial to avoid instruments with questionable return on capital, especially in a retail investor's context.
IV) Lubrizol & David Sokol
In 2011, Warren Buffett and Berkshire Hathaway faced severe scrutiny.
- David Sokol, chairman of several Berkshire subsidiaries, recommended Lubrizol Corporation as a potential acquisition to Buffett while he himself owned stocks in the company. Sokol's failure to disclose his stock ownership violated Berkshire's insider trading rules. Despite this, Berkshire acquired Lubrizol for approximately USD 9 billion, and Sokol profited around USD 3 million from the transaction.
- Upon investigation, it became clear that Sokol had been ambiguous about how he acquired Lubrizol stock, neglecting to mention that he purchased shares after meeting with the bankers proposing the acquisition. Buffett emphasized the issue as a matter of ethics, although he initially acknowledged that no one was at fault.
- This situation highlighted the importance of not being excessively trusting in the business world. The lesson here is to maintain a checklist, follow a rigorous process, and be unafraid to ask numerous questions, especially when your reputation is at stake. Taking extra precautions becomes essential in preserving one's integrity and credibility.
V) Amazon
- Up until now, the mistakes we've discussed were all instances of active decisions leading to losses. However, there's a different kind of mistake made by Buffett that falls more under the category of missed opportunities.
- In 2017, Buffett openly admitted that he had been observing Amazon.com for an extended period but never invested in it. In his own words, he confessed, “I was too dumb to realize. I did not think Jeff Bezos could succeed on the scale he has.”
- Buffett had underestimated Amazon's brilliance in two key areas: its dominance in e-commerce and its success in cloud services through Amazon Web Services.
- Buffett's traditional approach didn't align with investing in stocks with high price-earning ratios like Amazon's in 2019. Moreover, he tended to overlook technology companies, considering them beyond his expertise.
- In this context, the significant cost of this missed opportunity becomes apparent. It underscores the necessity of having a well-defined area of expertise. However, it's even more crucial to continuously expand and evolve that expertise over time to seize valuable opportunities.
VI) Google
- The Berkshire Hathaway portfolio notably lacks any shares from Alphabet or Google, a fact that Warren Buffett deeply laments.
- Google initially piqued Buffett's interest due to a Berkshire-owned subsidiary, GEICO, operating in the auto insurance sector. GEICO heavily depends on Google's advertising platform to attract customers.
- Buffett acknowledges that he should have delved deeper into Google's business and long-term prospects. His limited technical understanding might have played a role in missing this opportunity, despite it being right within his immediate purview.
VII) Berkshire Hathaway
- It might surprise you, but Warren Buffett's most significant investment blunder occurred when he bought Berkshire Hathaway in 1962. Back then, Berkshire Hathaway was a struggling textile business, meeting the criteria of Benjamin Graham's cigar-butt investing model.
- Buffett became intrigued by the favorable financial assessment and started purchasing the stock in installments. In 1964, the company's owner, Seabury Stanton, proposed buying Buffett's shares at $11.50 per share. However, the actual offer received was $11.32, which angered Buffett. In retaliation, he acquired a controlling stake in Berkshire Hathaway and ousted Stanton from the company.
- Despite taking revenge, Buffett found himself stuck with a significant investment in a failing business. To this day, he considers it his most regrettable investment. He endured the burden of this failing textile business for an additional 20 years. Buffett admits that had he redirected the cashflows into other ventures like insurance companies, Berkshire would have been worth twice as much as it is now.
- By his estimations, Buffett's decision to invest in Berkshire Hathaway amounted to a $200 billion mistake. The lesson here is clear: emotional decisions have no place in successful investing.
Thank you
@Money_Dictators
Why You should Trade With Your Spouse PermissionLet's talk about John, who loves to make quick stock market choices. He used to decide alone and felt good about it. But after marrying Emma, who likes to think things through, they started making these choices together. This change brought something unexpected – John started doing better in his trades.
Understanding the Effect of Asking Your Spouse Before Trading:
A study by experts Terry Odean and Brad Barber looked at how asking your spouse before trading affects how well you do.
papers.ssrn.com
Table: How Well People Trade with or without Spouse's Permission
This table shows us something interesting. When men checked with their wives before trading, they were more careful and made better choices. But single men, who traded a lot and didn’t ask anyone, didn’t do as well.
For women, it was different. Those who had to ask their husbands didn't do as well as women who made choices on their own. This might mean that when husbands get involved, they could add pressure or confusion, affecting women’s trading in a not-so-good way.
This study makes us think differently about trading alone. It shows that talking things over, especially in marriages, can actually lead to smarter choices in the stock market. It also reminds us that sometimes, sharing decisions can be better than going at it alone.
So men, if you just had a series of bad trades, you might do better by consulting with your spouse.
And for single men who had bad trades you might need to get yourself a woman.
Wholesale Inflation Posts Its Biggest Decline in Over Three YearA powerful one-two combination of data pointing to softening inflation is continuing to support investor sentiment and a strong equity rally with Producer Price data this morning showing weaker-than-expected price increases among wholesalers. The data follows yesterday’s release of the Consumer Price Index, which showed no m/m change. Stocks are also gaining additional support from data this morning depicting declining retail sales, which equity players are perceiving as disinflationary rather than contractionary. Markets are bifurcated today, however, with yields and the dollar higher, as bond and currency traders pare back some of yesterday’s bonanza.
Consumers Rein in Spending
The U.S. Commerce Department reported this morning that retail sales declined sharply in October, as consumer spending slowed from the third quarter’s blistering pace. The resumption of student loan repayments definitely had an adverse impact, as a portion of wages were allocated to debt service rather than consumption. Retail sales declined 0.1% month-over-month (m/m) in October, the first decline since March. October’s figure arrived better than the -0.3% projection, however, while slipping from September’s 0.9% growth rate. Retail sales excluding automobiles and excluding automobiles and gasoline rose 0.1% on both fronts, worse than the 0.8% figures from September.
Sales Contraction is Broad Based
Seven out of thirteen categories contracted during the period, with the following categories experiencing the noted m/m declines:
Furniture showrooms, 2%
Miscellaneous stores, 1.7%
Automobile dealerships, 1%
Sporting goods retailers, 0.8%
Building materials shops, gasoline stations and general merchandise also had declines but of lesser degrees.
Gains were led by health and personal retailers, with sales increasing 1.1%. Other categories produced the following increases:
Grocery stores, 0.6%
Electronics and appliances retailers, 0.6%
Dining establishments, 0.3%
Ecommerce, 0.2%
The apparel category was flat.
Wholesalers Hit with Price Declines
Wholesale inflation cratered at its fastest rate since the depths of the pandemic in April 2020. October’s Producer Price Index (PPI) declined 0.5% m/m, less than projections of a 0.1% increase and September’s 0.4% growth rate. Core PPI, which excludes food and energy, was unchanged and weaker than the 0.3% estimated and the previous month’s 0.2%. On a year-over-year (y/y) basis, headline and core producer prices rose 1.3% and 2.4%, compared to the previous period’s 2.2% and 2.7%. Leading the wholesale price decline were a 6.5% drop in energy products, a 0.7% decline in trade services and a 0.2% contraction in food. Transportation and warehousing wholesale prices rose at a sharp 1.5% rate, meanwhile. Services overall came in unchanged m/m while goods excluding food and energy rose 0.1% during the period.
Equities Gain, but Positive Sentiment Eases
Optimism sparked by yesterday’s CPI and this morning’s PPI appears to be easing, with stocks off their highs of the day while yields and the dollar have given back a good chunk of Monday’s gains. Still, all major U.S. equity indices are higher, with the small-cap Russell 2000 leading, having gained 0.8% while the Nasdaq Composite, S&P 500 and Dow Jones Industrial indices are higher by 0.3%, 0.3% and 0.2%. Sectoral breadth remains impressive, with all sectors higher while the defensive health care and utilities sectors are 0.1% and 0.4% lower. Leading the sectors are materials and consumer staples, with each gaining 0.6% as technology looks tired from its recent monster run. Indeed, to secure more gains going forward, the market will need to broaden out and begin to exhibit momentum in cyclical and value stocks. The dollar and yields are higher, with the 2- and 10-year Treasury maturities up 8 and 10 basis points (bps) to 4.92% and 4.55% while the greenback’s index is up 22 bps to 104.30. The dollar is gaining relative to the euro, yen and pound sterling while it loses ground versus the franc, yuan and Aussie and Canadian dollars. Crude oil is down 1.3% or $1.02 to $77.14 per barrel in response to the Energy Information Administration reporting a 17-million-barrel inventory increase in the U.S. over two weeks. Buoyant supply, continued concerns about weakening demand and waning worries over a potential escalation of the Middle East crisis are weighing on the commodity’s price.
Consumers Cut Spending and Seek Bargains
Target’s third-quarter results illustrate how consumers are cutting back on discretionary purchases while results for TJX highlight how consumers are increasingly turning to off-price retailers for low-cost items.
At Target, comparable sales, which is derived from stores operating for 12 months or more and online channels, fell 4.9% during the third quarter. It was the second-consecutive quarter of declining same-store sales. On a y/y basis, the company’s revenues dropped from $26.5 billion to $25.4 billion, a 4.3% contraction. The result, however, exceeded the $24.24 billion anticipated by the analyst consensus. On another positive note, the company’s earnings per share (EPS) of $2.10 exceeded the consensus expectation of $1.48 and increased from $1.54 in the year ago quarter. The quarter was impacted by Target aggressively discounting merchandise as it sought to reduce an inventory glut, a strong trend among retailers. Target also attributed its third-quarter earnings growth to improved sales of “high-frequency items” such as groceries and beauty items, the addition of a new line of trendy kitchenware, and other new items. Target also said it has continued to reduce its inventory which as of the end of the third quarter was down 14% y/y.
TJX, which operates discount retailers T.J. Maxx, HomeGoods and Marshall’s, raised its full-year guidance and said its third-quarter results benefited from capturing market share as its off-price stores attracted cost-conscious consumers. The company expects to generate a full-year EPS of $3.71 to $3.74, up from its earlier guidance of $3.66 to $3.72. TJX expects same store sales to increase 4% to 5%, an increase from its earlier guidance of 3% to 4%. During the third quarter, its sales revenue of $13.27 billion jumped approximately 9% from the $12.17 billion generated by the company in the year-ago period. Analysts expected $13.09 billion. Its overall same-store sales, furthermore, climbed 6%. TJX also posted an EPS of $1.03, which climbed significantly from $0.91 in the year-ago period. The recent quarter EPS exceeded the analyst consensus expectation of $0.99. In addition to benefiting from shoppers seeking bargains, TJX is also benefiting from its suppliers having excess inventory. The company provides discount prices by acquiring surplus items that retailers are removing from their inventories.
Washington Makes Progress of Avoiding Government Shutdown
In Washington, the House of Representatives appears to have avoided a government shutdown by passing a plan that will extend government funding until early next year. The measure is expected to be approved by the Senate and was passed by the lower chamber even though, it delays political battles over spending for border security and the Ukraine-Russia War while failing to make budget cuts in other areas of government spending. The House Freedom Caucus opposed the continuing spending resolution because it doesn’t include budget cuts and address border issues.
The Balancing Act
Today’s weak economic data highlights an important consideration going forward. Is data decelerating slow enough to be supportive of a soft landing, or is activity falling sharply and more consistent with recessionary conditions? The question is of the essence for capital markets as we operate within late-cycle monetary policy tightening, the riskiest juncture. While the former case would be supportive of current earnings estimates, the latter case would certainly point to projections falling from the $240 expected in 2024 for the S&P 500.
How To Build A Trading Journal That Helps You Make MoneyHey everyone!
In this video, we discuss why trading journals are important, talk about how to avoid common pitfalls in using them, and go over the keys to implementing one successfully in your own trading.
Over time, a well-crafted trading journal can actually help you make money, while building out the most important skill you can acquire as a trader: pattern recognition.
We also cover three main principles that you can use if you already have a journal set up that isn't working as you'd like. Be sure to:
1.) Keep it simple.
2.) Track the right things.
3.) Follow up regularly.
Do these, and it's impossible you won't get significantly better over the next 6 months - year.
Cheers!
Looking for more high-quality trade ideas? Follow us below. ⬇️⬇️
Trading Breakouts and Pullbacks: Trading StrategiesNavigating the volatile world of trading requires sharp instincts and well-strategised techniques. Breakouts and pullbacks are key concepts in trading, and understanding these principles can enhance trading outcomes. This article delves into four strategies, offering practical entry and exit criteria, and provides valuable insights for trading range breakouts and pullbacks.
To test these strategies out for yourself, head over to FXOpen’s free TickTrader platform. There, you’ll find a wide range of markets to practise on.
What Is a Breakout?
A breakout refers to a price movement beyond an established trading range or technical pattern. This can be either above a resistance level or below a support level. In the world of trading, a breakout signifies a potential shift in market sentiment. When prices breach a previously defined boundary, it often indicates a potential continuation or reversal of the current trend.
Breakouts can be triggered by various factors, including fundamental news, economic data releases, or increased trading volume. For traders, learning how to get involved in genuine breakouts instead of mistakenly trading false breakouts can provide valuable trading opportunities.
What Is a Pullback?
A pullback is a temporary reversal in the direction of an asset's prevailing trend, typically seen as a short-term decline during an uptrend or a brief rally in a downtrend. It's akin to a market "taking a breather" before resuming its primary trajectory. Pullbacks can be the result of profit-taking, market corrections, or other short-lived changes in traders' sentiments. For traders, pullbacks are critical because they often present prime buying (in an uptrend) or selling (in a downtrend) opportunities.
A Basic Breakout Strategy
Breakouts suggest a change in market sentiment and can offer compelling trading opportunities. A common strategy traders employ is to look for breakouts beyond a certain range, especially when accompanied by high volume. The high volume provides additional confirmation of the strength of the breakout. This strategy can offer clear entry and exit criteria:
Entry/Exit Criteria
Entry
Bullish Breakout: When the price closes above the established range on high volume, traders may consider going long.
Bearish Breakout: If the price closes below the range on high volume, a short position may be feasible.
Stop Losses
Bullish Breakout: Traders may set a stop loss just below a key swing point or beyond the lower side of the range.
Bearish Breakout: You can consider placing a stop loss slightly above a pivotal swing point or beyond the upper boundary of the range.
Take Profits
Traders can opt to take profits when the price hits a significant resistance (for bullish breakouts) or support level (for bearish breakouts). Another approach is to exit the position when there's evidence of the trend slowing or reversing.
A Breakout Retest Strategy
While the breakout strategy captures the initial price movement beyond a defined range, the breakout retest strategy involves waiting for the price to come back, or "retest", the breached level. This retest confirms the validity of the initial breakout and offers traders a secondary entry point. It capitalises on the principle that a previously established resistance may act as a new support in an uptrend and vice versa in a downtrend.
Entry/Exit Criteria
Entry
Bullish Retest: After an upward breakout, traders look for a buying opportunity when the price retraces to the previously broken resistance, now acting as support.
Bearish Retest: Post a downward breakout, a short position may be considered when the price revisits the old support, now transformed into resistance.
Stop Losses
Bullish Retest: One could set a stop loss slightly below the new support level (previously resistance).
Bearish Retest: Traders might consider placing a stop loss just above the new resistance level (former support).
Take Profits
Profits might be taken based on upcoming resistance (for bullish retests) or support levels (for bearish retests), or when other technical indicators suggest a possible trend change.
A Pullback to 50%
The pullback to the 50% strategy is a nuanced approach that takes advantage of the natural ebb and flow of market movements. After a range is broken, instead of immediately capitalising on a retest, traders employing this strategy patiently await a deeper pullback, specifically to the midpoint between the range's high and low.
To find the 50% level, traders use the Fibonacci Retracement tool from the high to the low of the range they are targeting.
Entry/Exit Criteria
Entry
Bullish Pullback: In an uptrend, traders can look for long entry opportunities when the price retraces to the 50% level between the range's low and high.
Bearish Pullback: In a downtrend, shorting possibilities arise when the price moves up to the halfway point between the range's high and low.
Stop Losses
Bullish Pullback: You can consider setting a stop loss just beyond the low of the original range.
Bearish Pullback: Traders can place a stop loss slightly above the high of the initial range.
Take Profits
Profits might be taken when the price approaches significant resistance (for bullish pullbacks) or support levels (for bearish pullbacks), or as informed by other technical factors.
A Pullback to a Moving Average
The pullback to moving average strategy marries the concept of a range breakout with the dynamic support or resistance levels provided by moving averages. While there are numerous moving averages traders might employ, the Exponential Moving Average (EMA) is a favourite among many due to its sensitivity to recent price movements.
Typically, for this strategy, longer-term periods like the 50-period or 200-period EMAs are preferred, offering a smoother and more reliable representation of the market's direction.
Entry/Exit Criteria
Entry
Bullish Pullback: After an upward breakout, traders can seek long entry opportunities when the price touches or approaches a significant EMA, acting as a dynamic support.
Bearish Pullback: Following a downward breakout, short entry opportunities become evident when the price meets or nears a vital EMA, serving as a dynamic resistance.
Stop Losses
Bullish Pullback: A stop loss might be set just below the chosen EMA level.
Bearish Pullback: You can consider positioning a stop loss slightly above the relevant EMA level.
Take Profits
Profits might be taken as the price nears notable resistance (for bullish pullbacks) or support zones (for bearish pullbacks) or based on other technical signals.
Steps for Trading Range Breakouts and Pullbacks
When trading breakouts in forex, stocks, commodities, or crypto*, there are a few universal steps that may help:
Volume Confirmation: When trading consolidation breakouts and pullbacks, a spike in trading volume can bolster the validity of a move. A high volume during a breakout indicates strong market participation, while a decreasing volume during a pullback suggests it's a temporary move.
Multiple Indicators: Don't rely solely on one technique or indicator. Combining strategies, like using RSI or MACD alongside pullback methods, can provide a clearer trading signal.
Chasing: If a breakout or pullback has already progressed significantly, it may be prudent to wait for another opportunity. Late entries can compromise potential returns and increase risk.
False Breakouts: Not all breakouts sustain. Traders use stops and are always prepared to reassess if the breakout reverses quickly.
The Bottom Line
Harnessing the power of breakouts and pullbacks can elevate your trading, offering a strategic edge in ever-changing markets. These four strategies are a great place to start, regardless of your preferred market. To put these insights into action, you can consider opening an FXOpen account. Once you do, you’ll gain access to a broad range of markets, competitive trading costs, and lightning-fast execution speeds. Good luck!
*At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Learn What is PULLBACK and WHY It is Important For TRADING
In the today's post, we will discuss the essential element of price action trading - a pullback.
There are two types of a price action leg of a move: impulse leg and pullback.
Impulse leg is a strong bullish/bearish movement that determines the market sentiment and trend.
While a pullback is the movement WITHIN the impulse.
The impulse leg has the level of its high and the level of its low.
If the impulse leg is bearish, a pullback initiates from its low and should complete strictly BELOW its high.
If the impulse leg is bullish, a pullback movement starts from its high and should end ABOVE its low.
Simply put, a pullback is a correctional movement within the impulse.
It occurs when the market becomes overbought/oversold after a strong movement in a bullish/bearish trend.
Here is the example of pullback on EURJPY pair.
The market is trading in a strong bullish trend. After a completion of each bullish impulse, the market retraces and completes the correctional movements strictly within the ranges of the impulses.
Here are 3 main reasons why pullbacks are important:
1. Trend confirmation
If the price keeps forming pullbacks after bullish impulses, it confirms that the market is in a bullish bearish trend.
While, a formation of pullbacks after bearish legs confirms that the market is trading in a downtrend.
Here is the example how bearish impulses and pullbacks confirm a healthy bearish trend on WTI Crude Oil.
2. Entry points
Pullbacks provide safe entry points for perfect trend-following opportunities.
Traders can look for pullbacks to key support/resistances, trend lines, moving averages or fibonacci levels, etc. for shorting/buying the market.
Take a look how a simple rising trend line could be applied for trend-following trading on EURNZD.
3. Risk management
By waiting for a pullback, traders can get better reward to risk ratio for their trades as they can set tighter stop loss and bigger take profit.
Take a look at these 2 trades on Bitcoin. On the left, a trader took a trade immediately after a breakout, while on the right, one opened a trade on a pullback.
Patience gave a pullback trader much better reward to risk ration with the same target and take profit level as a breakout trader.
Pullback is a temporary correction that often occurs after a significant movement. Remember that pullbacks do not guarantee the trend continuation and can easily turn into reversal moves. However, a combination of pullback and other technical tools and techniques can provide great trading opportunities.
Please, let me know if you have any questions! Also, please, support this post with like and comment! Thank you for reading!
The CORRECT way to trade MAsMost people have traded with moving averages. They end up being frustrated and losing money. That’s because they’re not using them correctly. I’m going to show you how to use moving averages the right way.
Where it works and where it doesn’t
To get good trades using moving averages, there’s just 1 thing to do. The thing you need to do is move to a higher timeframe. Stick to 1H, 4H and Daily charts. Sounds simple, right?
It is simple but extremely effective. When this strategy is used on higher timeframes, it works amazingly. But on lower timeframes, you end up getting a lot of false signals.
Also, use this strategy for potential reversals and trend continuation entries. Avoid using them in a sideways market. (I’ll talk about how to avoid a sideways market)
Remember, the higher the time frame is, the better and more reliable the signal is.
MA pairings
These are the best MA pairings you can use:
- 13 EMA & 21 SMA
- 5 & 20 SMA
- 10 & 50 SMA
The big secret
Now, after using the moving averages to trade, you will still get fake outs. You will still get caught in sideways markets. But there is a way to make the signals extremely reliable and filter out false signals. You can use the Death cross and the Golden cross.
A Death cross is used for a sell. It happens when the longer period MA is ALREADY sloping downward and the shorter period MA crosses below it. Example:
A Golden cross is used for a buy. It happens when the longer period MA is ALREADY sloping upward and the shorter period MA crosses above it. Example:
These are used to avoid sideways markets.
Summary
This strategy is supposed to be used on high timeframes like the 4H and Daily chart.
Rules for a buy:
- The shorter period MA crosses above the longer period MA
- The longer period MA should be either flat or already be sloping up (this is important)
- Never take a buy if the longer period MA is sloping downward
Rules for a sell:
- The shorter period MA crosses below the longer period MA
- The longer period MA should be either flat or already be sloping down (this is important)
- Never take a sell if the longer period MA is sloping upward
Please do not use this on lower timeframes like 1M, 5M, 15M and 1H.
I hope you got value from this!
New Chips From Nvidia! Another growth cycle for the stock?Nvidia Corp unveiled its new H200 Tensor Core GPU yesterday, 13 November 2023. This chip boasts a 60-90% productivity increase compared to current models, with Nvidia's main competitors still in the process of developing analogs. The H200 Tensor Core is scheduled for general sale in Q2 2024. It may lead to a future rise in revenue and net profit of the issuer.
Consequently, today, our focus is on the Nvidia Corp (NASDAQ: NVDA) stock chart.
On the D1 timeframe, support has formed at 398.80, but resistance has not yet developed. Following a prolonged growth cycle, a correction to 476.52 is most likely.
On the H1 timeframe, if the asset's upward trend persists, a short-term target for a price increase might be around 502.67. In the medium term, the target for a price increase could hover around 532.55.
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Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67.85% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
$QQQ: Long term trend turning up?A pattern similar to the one that took place after the 2003 and 2009 bottoms is surfacing in mega cap tech and in index charts now...
Low risk buy signal suggesting we might get a substantial rally from here within the coming months, but potentially also for a couple years if the quarterly chart triggers here. This quarterly signal is visible in names like NASDAQ:AAPL and NASDAQ:MSFT , to name a few, so I think it will also trigger here.
It also comes on the heels of rates potentially having peaked for the time being, and the Dollar turning down after rallying substantially as of late. And after Oil has come down off the highs, which gives the market a bullish boost with some lag...it will be visible in the next quarterly report or two.
Best of luck!
Cheers,
Ivan 'risk on' Labrie.
Slippery Slope: What is Slippage?
With the unfortunate demise of the prop firm My Forex Funds, the issue of slippage has recently become a hot topic. This educational post takes a look at the slippery issue of slippage, beginning with the basics all the way to addressing popular theories and speculations about slippage. Something to remember is that every trader, regardless of expertise, will encounter slippage during their trading activity.
What exactly is slippage?
Slippage is the term used in the forex market to describe the difference between the requested price at which you expect to fill your order and the actual price that you end up paying. Slippage most often occurs during periods of high market volatility, when market conditions are very thin due to low volumes traded or when the market gaps; all of these scenarios then lead to market conditions being such that orders cannot be executed at the price quoted. Therefore, when this happens, your order will be filled at the next available price, which may be either higher or lower than you had anticipated. Understanding how forex slippage occurs can enable a trader to minimise negative slippage while potentially maximising positive slippage.
Market Gap
High Market Volatility
Slippage is part of trading and cannot be avoided. This is due to forex market volatility and execution speeds. When a market experiences high volatility, it generally means there’s low liquidity. The reason for this is that during this time, market prices fluctuate very quickly. Where this affects forex traders is when there’s not enough FX liquidity to fill an order at the requested price. When this happens, the liquidity provider will complete the trade at the next best available price.
Another cause of slippage is execution speed. This is how fast your Electronic Communication Network (ECN) can complete a trade at your requested price. With market prices changing in fractions of a second, having faster execution times can make a difference, especially on large trades.
What is the difference between positive slippage, no slippage, and negative slippage?
When slippage occurs, it is usually negative, meaning you paid more for the asset than you wanted to, though at some times it can also be positive. When slippage is positive, it means you paid less for the trade than you expected and therefore got a better price. To get a better understanding of this, let's see the image below.
How do you calculate slippage?
Let's assume that the price of the EUR/USD is 1.05000. After doing your research and analysing the market, you speculate that it’s on an upward trend and long a one-standard lot trade at the current price of EUR/USD 1.05100, expecting to execute at the same price of 1.05100.
The market follows the trend; however, it goes past your execution price and up to 1.05105 very quickly—quicker than a second. Because your expected price of 1.05100 is not available in the market, you’re offered the next best available price. For the sake of the example, let's assume that the best next price is 1.05105. In this case, you would experience negative slippage (positive for the broker), as you got in at a worse price than you wanted:
1.05100 – 1.05105 = -0.00005, or -0.5 pips.
On the other hand, let’s say your trade was executed at 1.05095. You would then experience positive slippage (negative for the broker), as you got in at a cheaper price than you wanted:
1.05100 – 1.05095 = +0.00005, or +0.5 pips.
Negative Slippage Example
Is slippage a technical glitch in a broker’s software, or is it built and designed to bring in extra revenue?
There are popular beliefs that slippage is a software glitch or that it is made just to give brokers and liquidity providers extra revenue. This is not true, as slippage is something that is unavoidable. There are times when the markets are extremely volatile and price movements are too quick due to a lack of liquidity.
Slippage does bring in extra revenue for brokers and liquidity providers, but you need to remember that slippage goes both ways; while brokers and liquidity providers will generate profits from negative slippage, they will also generate losses from positive slippage. Though there are times when brokers (very rare) use price manipulation on their clients to generate additional revenue (more on this later).
How can a trader avoid or minimise slippage?
While slippage is impossible to fully avoid, there are a few things you can do to minimise the impact of slippage and protect yourself as much as possible in the markets, including using stop-loss orders to limit their exposure and placing orders during less volatile times.
Stop-loss orders are instructions to your broker to immediately exit a trade if it reaches a certain price. By using stop-loss orders, you can limit your losses if the market moves against you. High liquid markets such as Forex enable you to take advantage of market swings to enter and exit trades rapidly, limiting your exposure to the market but also increasing the risk that your stop-loss order may not be executed at the price you expect if the market moves quickly against you. Additionally, there are some brokers that offer traders guaranteed stop-loss orders called 'Guaranteed Stop Orders' (GSOs), meaning that the stop-loss price is guaranteed, which makes the trader unaffected by slippage when getting stopped out.
Another way to reduce the impact of slippage is to trade during less volatile times. The forex market is open 24 hours a day, but not all hours are equal. There are times when there are hardly any trading volumes being generated, and you want to avoid trading during this time at all costs as trading spreads will be wider and you will most likely get slipped due to the lack of liquidity in the markets. The best times to trade are usually when the market is most active, which is typically during specific trading sessions such as the Eurpoean or US trading sessions. To summarise, to minimise slippage, you should:
What is slippage tolerance, and how should you factor that into account with regard to your stop-loss and risk-to-reward calculations?
Some brokers will enable a feature called the 'Market Order Deviation Range' where the trader can adjust the slippage's maximum deviation. This is done so a trader can estimate his or her tolerance to slippage. For example, if you set the maximum deviation to 3 pips, the order will be filled as long as the slippage equals 3 or below. If the price slips beyond the set maximum, the order won't be filled. This is an effective way of managing your risk-to-reward calculations because if you have a strict risk-to-reward set-up and do not have much leeway to give in terms of slippage, you can adjust the slippage tolerance setting so that if the trade comes with more slippage than your trade can afford, it will not enter you in the trade.
How can a trader tell if his or her broker is being predatory with regard to slippage?
Although rare and illegal now that regulators are prevalent in the industry, in some cases, brokers may manipulate prices to cause slippage. This usually happens during times of high volatility when there are a lot of market orders. By creating a large amount of slippage, brokers can increase their profits. Forex brokers that are not regulated by the major governing bodies are more likely to do this. For a broker to gain the regulation of a major governing body, they must adhere to very strict guidelines set out by the regulating authority. Firstly, if you suspect that your broker is manipulating prices, you should immediately look for another broker. If you have evidence of your broker manipulating prices, you should report that broker to the financial authorities.
A good way to gauge if a broker is potentially manipulating prices is by requesting a trade journal from them. A good and reputable broker usually offers trade journals to their clients. Trade journals show execution times of trades and will have a comment on the journal if the trade was slipped. On a standard trade journal, slippage comments should not appear there often (unless you are trading at times when the market is volatile, thin, or trading outside liquid hours).
A broker that manipulates prices to their clients is usually hesitant to offer trade journals to their clients because it shows this on the trade journals. So if your broker is not willing to share the trade journals with you, you might want to think twice about continuing to trade with them. To add to that, you can also check if your broker is either a market maker or directly connected to the interbank market, as they will handle slippage differently.
To recap, slippage is a part of forex, and no trader is immune to getting it. It occurs most often during periods of high market volatility. Though slippage is almost impossible to avoid and can impact your profit and losses, there are a few things you can do to minimise slippage and its impact. This includes the use of limit and stop-loss orders, placing orders outside of volatile market times, avoiding major economic and news events, and only using brokers that are regulated by the major governing bodies.
BluetonaFX
Primer on Crude Oil Crack SpreadEver dreamt of being an oil refiner? Fret not. You can operate a virtual refinery using a combination of energy derivatives that replicates oil refiner returns.
Crude oil is the world’s most traded commodity. Oil consumption fuels the global economy. Crude is refined into gasoline and distillates.
Refining is the process of cracking crude into its usable by-products. Gross Processing Margin (GPM) guides refineries to modulate their output. Crack spread defines GPM in oil refining.
This primer provides an overview of factors affecting the crack spread. It delves into the mechanics of harnessing refining spread gains using CME suite of energy products.
UNPACKING THE CRACK SPREAD
Crack spread is the difference between price of outputs (gasoline & distillate prices) and the inputs (crude oil price). Cracking is an industry term pointing to breaking apart crude oil into its component products.
Portfolio managers can use CME energy futures to gain exposure to the GPM for US refiners. CME offers contracts that provide exposure to WTI Crude Oil ( CL ) as well as the most liquid refined product contracts namely NY Harbor ULSD ( HO ) and RBOB Gasoline ( RB ).
Crude Prices
Crude oil prices play a significant role in determining the crack spread. Refining profitability is directly impacted by crude oil price volatility which is influenced by geopolitics, supply-demand dynamics, and macroeconomic conditions.
Higher oil prices lead to a narrowing crack spread. Lower crude prices result in wider margins.
Expectedly, one leg of the crack spread comprises of crude oil.
Gasoline Prices
Gasoline is arguably the most important refined product of crude oil. Gasoline is not a direct byproduct of the distillation process. It is a blend of distilled products that provides the most consistent motor fuel.
Gasoline prices at the pump in the US vary by region. Price differs due to differences in state taxes, distance from supply sources, competition among gasoline retailers, operating costs in the region, and state-specific regulations.
CME’s RBOB Gasoline contract provides exposure to Reformulated Blendstock for Oxygenate Blending (RBOB). It is procured by local retailers, who blend in their own additives and sell the final product at pumps.
RBOB is blended with ethanol to create reformulated gasoline. It produces less smog than other blends. Consequently, it is mandated by about 30% of the US market. RBOB price is thus representative of US gasoline demand.
Each CME RBOB Gasoline contract provides exposure to 42,000 gallons. It is quoted in gallons instead of barrels. The contract size is equivalent to one thousand barrels like the crude oil contract.
Distillate Prices
Distillate or Heating Oil is another important refined product of crude oil. Distillate is used to make jet fuel and diesel. Demand for distillate products is distinct from gasoline demand.
A substantial portion of the North-East US lack adequate connection to natural gas. Hence, the region depends on HO for energy during winters making HO sensitive to weather.
CME NY Harbor ULSD contract ("ULSD”) provides exposure to 42,000 gallons of Ultra-low sulphur diesel which is a type of HO. ULSD contract is also equivalent to one thousand barrels.
Chart: ULSD Price Performance Over the Last Twenty Years.
TRADING THE CRACK SPREAD
The crack spread can be expressed using the above contracts in three distinct ways:
1) 1:1 SPREAD
This spread consists of a single contract of CL on one leg and a single contract of one of the refined products on the other. This spread helps traders to express their view on the relationship between single type of refined product against crude oil. It is useful when price of one of the refined products diverges from crude oil prices.
1:1 spread is also useful when there are distinct conditions affecting each of the refined products.
2) 3:2:1 SPREAD
This spread consists of (3 contracts of CL) on one leg and (2 contracts RBOB + 1 contract of ULSD) on the other leg. The entire position thus consists of six contracts. It assumes that three barrels of crude can be used to create two barrels of RBOB and one barrel of HO.
This trade is better at capturing the actual refining margin. It is commonly used by refiners to hedge their market exposure to crude and refined products.
3:2:1 spread is used by investors to express views on conditions affecting refineries.
3) 5:3:2 SPREAD
Spread consists of (5 contracts of CL) on one leg and (3 contracts of RBOB + 2 contracts of heating oil) on the other leg. This spread captures the actual proportions from the refining process. However, it is much more capital-intensive.
FACTORS IMPACTING CRACK SPREAD
Seasonality, supply-demand dynamics, and inventory levels collectively impact crack spreads.
Seasonality
Mint Finance covered seasonal factors affecting crude oil prices in a previous paper . In that paper, we described that crude seasonality is influenced by variation in refined products demand.
In summer, gasoline demand is higher, and, in the winter, distillate demand is higher.
Seasonal price performance of the three contracts is distinct leading to a unique seasonal variation in various crack spreads. Summary performance of the three spreads is provided below.
Chart: Seasonal price performance of Crude, its refined products, and their spread (excluding years 2008, 2009 and 2020 in which extreme price moves were observed)
Refiners strategically time their operations based on seasonal trends, ramping up refinery capacity ahead of peak demand in summer and winter. This involves building up inventories to meet anticipated high demand.
However, this preparation often results in a narrowed spread just before peak utilization. As the spread reaches its lowest point, refiners take capacity offline for maintenance.
Subsequently, crack margins begin to expand as refined product supplies dwindle, aligning with decreased crude oil consumption. This results in a gradually increasing spread through high consumption periods.
Supply/Inventories
Supply and inventories of crude oil and refined products influence crack spreads. When inventories of refined products remain elevated, their prices decline narrowing the spread.
When the production and inventory of crude oil is elevated, its price declines leading to a widening spread.
On the contrary, low inventories of refined products can lead to a wider crack spread and low inventories of crude oil leads to a narrower crack spread.
Demand
Refinery demand has a self-balancing effect as higher refining requires higher consumption of crude which acts to increase crude oil prices.
Demand for crude oil and refined products is broadly correlated. However, there are often periods when demand diverges on a short-term scale.
Economic activity and available supplies drive demand for refined products. During periods of high economic growth, refined product consumption is robust pushing their price higher.
Demand for refined products can precede or lag demand for crude oil from seasonal as well as trend-based factors. This lag can be identified using the crack spread. Sharp moves in crack spread pre-empt moves in the underlying which act to normalize the spread.
CURRENT CONDITIONS
There are two trends defining the crack spread currently:
1) Divergence in demand & inventories of gasoline and distillates: Low demand for gasoline is evident due to expectations of an economic slowdown while gasoline inventories remain elevated. Though, distillate consumption remains high as inventories are declining and lower than the 5-year average range.
Chart: Divergence in inventories of distillate and gasoline (Source – EIA 1 , 2 ).
Moreover, inventories of gasoline and distillates are higher than usual. Both factors together have led to a gloomy outlook for refined product demand. Gasoline stocks have started to increase while distillate stocks are still declining.
When refined product inventories are elevated investors can position short on the crack spread in anticipation of ample supply. Conversely, if refined product inventories are low, investors can position long on the crack spread.
Chart: Divergence in refined product inventories in US (gasoline rising and distillate declining).
2) Declining crude price and tight supplies: In September, Saudi Arabia and Russia announced supply cuts extending into January. Globally, this led to a supply deficit of crude oil. Supplies of crude in the US was particularly stressed as refiners increased utilization to build up inventories while margins were high and exacerbated by a pipeline outage.
Chart: Crude Oil inventories in US have stabilized in September and October.
Following increase in oil prices, refining activity has slowed, and supplies have become more stable.
When inventories of crude are stable or elevated, it indicates less demand from refiners. Investors can opt to position long on the crack spread anticipating ample crude supply.
Chart: US Refinery Utilization and Crude Inputs have slowed in October.
Although, crude oil supply cuts from Saudi are going to continue until January 2024, there is no longer a deficit as consumption has slowed down.
Together, both trends have caused a sharp collapse in the crack spread. Value of the 3:2:1 crack spread has declined by 50% over the past month.
Prices of refined products have been affected more negatively by low demand than crude oil. Inventories and supply situation for refined products is more secure than crude oil. Still, seasonal trends suggest an expansion in crack spread once refined product inventories start to be depleted.
HARNESSING GAINS FROM CHANGES IN CRACK SPREAD
Two hypothetical trade setups are described below which can be used to take positions on the crack spread based on assessment of current conditions.
LONG 3:2:1 SPREAD
Based on (a) sharp decline in crack spread which is likely to revert, and (b) seasonal trend pointing to increase in the crack spread, investors can take a long position in the crack spread. This consists of:
• Long position in 2 x RBF2024 and 1 x HOF2024
• Short position in 3 x CLF2024
The position profits when:
1) Price of RBOB and ULSD rise faster than Crude.
2) Price of Crude declines faster than RBOB and ULSD.
The position looses when:
1) Price of Crude rises faster than RBOB and ULSD.
2) Price of RBOB and ULSD declines faster than Crude.
• Entry: 63.81
• Target: 79.12
• Stop Loss: 55.73
• Profit at Target: USD 45,930 ((Target-Entry) x 1000 x 3)
• Loss at Stop: USD 24,240 ((Stop-Entry) x 1000 x 3)
• Reward/Risk: 1.89x
LONG 1:1 HEATING OIL SPREAD
Based on relative bullishness in distillate inventories plus stronger seasonal demand for distillates during winter, margins for refining heating oil will likely rise faster than gasoline refining margins. Focusing the expanding crack margin on a 1:1 heating oil margin spread can lead to a stronger payoff.
This position consists of Long 1 x HOF2024 and Short 1 x CLF2024 .
The position profits when:
1) Price of ULSD rises faster than Crude.
2) Price of Crude declines faster than ULSD.
The position will endure losses when:
1) Price of Crude rises faster than ULSD.
2) Price of ULSD declines faster than Crude.
• Entry: 36.15
• Target: 42.79
• Stop Loss: 32.3
• Profit at Target: USD 6,640 ((Target-Entry) x 1000)
• Loss at Stop: USD 3,850 ((Stop-Entry) x 1000)
• Reward/Risk: 1.72x
KEY TAKEAWAYS
Crack spread refers to the gross processing margin of refining (“cracking”) crude oil into its by-products.
Refined products RBOB and ULSD can be traded on the CME as separate commodities. Both are representative of demand for crude oil from distinct sources.
There are three types of crack spread: 1:1, 3:2:1, and 5:3:2.
a. 1:1 can be used to express views on the relationship between one of the refined products and crude.
b. 3:2:1 can be used to express views on the refining margin of refineries.
c. 5:4:3 can give a more granular view of proportions of refined products produced at refineries but is far more capital-intensive.
Crack spreads are affected by seasonality, supply, and inventory levels of crude and refined products, as well as demand for each refined product.
A low-demand outlook for refined products of crude is prevalent due to expectations of an economic slowdown.
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
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Gold: Shining Bright with OpportunitiesGold is once again in the spotlight, and here’s why!
Economic Cycles, PMI & Gold
The US Purchasing Managers Index (PMI) is a leading indicator often used to identify turns in the economic cycle. A below 50 PMI print indicates contraction in the US manufacturing cycle, while a print above 50 suggests expansion. Generally speaking, expanding manufacturing cycles spell a boost for industrial materials, like copper, while contractionary periods spell downturns in the economy and a preference for 'flight to safety', boosting gold holdings. An interesting observation from the chart above is the correlation between the Gold/Copper ratio and the inverted US PMI, moving in tandem over the last decade. However, looking at the current scenario, the PMI has turned lower, yet the Gold/Copper ratio has remained relatively muted, suggesting that gold may currently be underpriced. Similarly, the Gold/Silver ratio shows a less pronounced but similar effect.
Significant drops in the PMI below the 50 level have historically triggered notable increases in the Gold/Copper ratio. With the PMI currently below 50 for a sustained period, this might be priming the ratio for a potential upward surge.
Yields, Fed Expectation & Gold
As a non-interest-bearing asset, gold loses its appeal when interest rates rise, leading investors to prefer interest-yielding products. We covered the effect of a Fed rate cut on gold in a previous article here . While the Fed remains steadfast in holding rates, even the act of pausing rate hikes positively impacts gold. This effect is observed via the Gold/US10Y Yields ratio. The previous pause in rate hikes preceded a significant run-up in this ratio. Additionally, this ratio is currently near its resistance level, which it has respected multiple times over the last decade.
With the Fed expected to continue holding rates, now could be an opportune time to consider adding gold to your portfolio.
Gold Price Action
Gold’s current price action also shows a completed cup-and-handle pattern. With an initial attempt to break higher halted, it now trades right above the handle.
Additionally, gold could arguably be trading in an ascending triangle pattern, as noted by its price action as well as generally declining volume, potentially signaling a bullish continuation pattern.
In summary, given the Fed's stance on holding rates, the correlation between PMI and the Gold/Copper ratio, and the bullish technical indicators in gold's price action, a positive outlook on gold seems reasonable. To express our view, we can buy the CME Gold Futures at the current level of 1962. Using the cup and handle pattern to guide the take profit level, at 2400 and stop at 1890. Each 0.10 point move in gold futures is for 10 USD. The same view can also be expressed with greater precision using the CME Micro Gold contract where the notional is one-tenth of the regular size gold contract. Here, each 0.10 point move is for 1 USD.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. 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
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
www.cmegroup.com
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Live stream - Bitcoin 40K: What You Need To Know About This AreaBitcoin price action analysis, and bot signal review.
