Market analysis and insights on Forex & Commodities!

Here’s How I Would Trade the Upcoming French Elections

Announcement: On the next 2 Thursdays (11 & 18 May 2017), I will be conducting the last and final run of the “Trading Foundation Workshop”, after which I will be taking a break from training to work on a new big and exciting project. Don’t miss this last chance to catch me live!


The French election has been a hot topic among financial news outlets, but the hype around it doesn’t yet compare to that of Donald Trump last year.

It was a historic event that saw a roller-coaster in the markets during the exciting vote tallying nail-biter.

Here was how the USDJPY currency pair reacted as the votes were being counted. In the first 5 hours, Hillary was ahead in vote count and the USDJPY fell drastically. But as time went by, the USDJPY rose almost non-stop for 1 month.

 


The USDJPY currency pair 5 hours, 17 hours, and 3 days after the election outcome in the U.S.

In spite of the hype surrounding this event, it is unlikely to be as epic as Trump vs Clinton. France is indeed heading into the most unpredictable presidential election in decades; it is going to affect the EU’s second largest economy, but possibly also the direction of the EU itself. All eyes will be on the Euro currency and it is likely to be heavily traded during the announcement itself.

 

Here’s What You Need to Know

The First Stage of Voting: A candidate can theoretically win through primary contests, known as the first round of voting. He can actually win an election by securing 50% of the votes in this round, where mayors and other officials will vote, but this has not happened since the 1960s.

Two Weeks After the First Ballot: The first round vote took place on 23rd April, leaving two remaining candidates, while the second round will take play on 7th May. After 7th May, French voters will again vote on 11th June and 18th June to elect members of the National Assembly.

Young centrist Macron and populist right-wing Marine Le Pen.
Image Source: trbimg.com

No-Show: More than 22% of voters abstained from voting, the highest since 2002, which is worrying because Macron won 24% while Le Pen won 21.3% of the vote. The progress of the election has been said to mirror that of America last year.

Macron – Frexit-Advocate with Leftist Undertones

Macron recently warned the EU that it must change, or a Frexit, just like Brexit, would be soon to follow. However, he has carefully treaded between being a social support advocate and being market-friendly, a promise that is probably very challenging to deliver.

  • Working Hours: Re-evaluating the 35-hour work week, retirement ages
  • EU Policy: Suggesting that stronger nations within the eurozone engage in financial equalization (this is probably going to be done through budget transfers)

He also promises to “transform and not reform” France, and he has also promised to help a million jobless people find jobs. Among his other promises include removing the huge difference in public and private sector pensions.

The French are not happy with the current president, François Hollande, who chose to not run for reelection. Hollande belongs to the Socialists party, but the nominee of his party only garnered less than 7% of votes in a five-party race. At this point, the polls overwhelmingly show preference for Macron, but given the surprising situation in Brexit and the recent U.S election, uncertainty is likely to plague the minds of citizens and fund managers around the world.

 

Marine Le Pen – The Trump of France?

Recent polls project that Marine Le Pen isn’t expected to become president. However, she seems to represent the wave of populism sweeping across Europe, and a Le Pen victory

Polls show that the poor prefer Le Pen.
Image Source: Telegraph.co.uk

While there are many articles discussing Le Pen’s policies and how they will affect the nation of France, we can view Le Pen’s proposals as being nationalist and protectionist.

  • Stimulating Economic Growth: Government-led improvements in national industries
  • Reduce Bureaucracy: Reduce the size of government and wasteful welfare spending
  • Border Control: France to retake control of its borders
  • Currency Control: Reintroduce the French franc, to be used in circulation alongside the Euro

This resonates strongly with working class voters (I almost seem to be writing about the U.S election), for France has been plagued by high taxes and unemployment for years. She looks like the change that the average citizen is looking for.

 

The Uncertainty Ahead – What Traders Can Do

It is sad that the streets of Paris saw several clashes, and police officers were called to the scene. Three police officers were injured by petrol bombs thrown by rioters, and the police was forced to use tear gas on the demonstrators. It is strangely similar to the violence that surrounded Trump’s victory, but no one can conclude that this is definitely going to happen.

What’s certain is that volatility surrounding the election is going to be high, and several brokers have raised trading margin requirements ahead of the election. In any case, it would be wise to close out your trades and look to re-enter after the volatility. If you have longer-term positions, holding on to them may be a good idea because the market is unlikely to be as volatile as that of the U.S last year, and you are likely to remain unscathed.

  • Close out short-term positions, and look to re-enter after the volatility has ended.
  • Experienced traders can trade small and look for trend-following entries during the event, as forex markets might have prolonged directional bias. Watch closely how price behaves after any initial knee-jerk reaction.
  • Beginning traders are advised to stay away from trading during the election results announcement time.

 

P.S. On the next 2 Thursdays (11 & 18 May 2017), I will be conducting the last and final run of the “Trading Foundation Workshop”, after which I will be taking a break from training to work on a new big and exciting project. Don’t miss this last chance to catch me live!

Research Sources

france24.com/en/20170501-french-political-climate-mirrors-similar-USA-trump-election-surprise
dw.com/en/macron-promises-to-transform-not-reform-france/a-37778318
nationalreview.com/corner/447259/why-everyone-so-certain-about-weekends-french-election
thesun.co.uk/news/3453851/french-election-2017-emmanuel-macron-eu-france-frexit/
theatlantic.com/international/archive/2017/05/french-elections-2017-who-will-win/524775/
fxcm.com/insights/will-french-presidential-election-april-2017-affect-euro/

The World’s 7 Greatest Currency Trades Ever Made – Key Lessons & Insights

Have you ever wondered, what are some of the most epic forex trades that went down in history? And more importantly, what crucial insights and lessons can we learn from these legendary traders?

1) ANDY KRIEGER – $300 MILLION PROFIT

Andy Krieger is a somewhat unknown trader who made his name at Bankers Trust. He was watching currencies in 1987 after the Black Monday crash, and he saw an opportunity for arbitrage in some overvalued currencies. He became famous because he shorted a few hundred million dollars worth of Kiwi (New Zealand’s currency), and he shorted so much that his position was said to exceed the money supply of New Zealand as a nation.

Andy shorted so much currency that there was not enough currency in circulation to support the short.

The kiwi fell tremendously while he was shorting it and made $300 million for Bankers Trust. Legend has it that a worried New Zealand government official called up Krieger’s bosses and made threats to him. Krieger later left the firm to work for George Soros in his quantum fund.

 

2) STANLEY DRUCKENMILLER – $2 BILLION TRADE

Stanley Druckenmiller made this historic trade as a trader working for George Soros’ Quantum Fund. He went long on the German mark because of the fall of the Berlin Wall, and the undervaluation that was going on during the reunification between East and West Germany. Legend has it that Stanley initially bet a few hundred million dollars, until Soros told him to raise the bet to $2 billion. That year, the Quantum fund brought in 60% returns.

Stanley is a rather unknown person, but the fact that George Soros hired him is worth noting.

Another trade that Stanley made was in the 1990s. He was buying German bonds, because he expected investors to move from British bonds to German bonds. It was also during the period where Soros broke the Bank of England.

3) GEORGE SOROS – $1 BILLION PROFIT IN THE POUND

George Soros became famous because he shorted the pound aggressively, in fact, so aggressively that he borrowed heavily and make $1 billion in the process.

At that time, Britain wanted to keep the value of the pound above 2.7 German marks, a key feature of the fixed exchange rate mechanism. Many speculators began to take up short positions in the expectation that this fixed exchange rate would not hold.

This was the famous ‘broke the British bank’ trade that shot George Soros to stardom.

Britain even raised its interest rates to double digits to try to attract investors and prop up the buying in its currency, however, the British government soon realized that it would lose lots and lots of money trying to keep the value of the pound. Soros made $1 billion for his fund on this trade.

 

4) PAUL TUDOR JONES – $100 MILLION PROFIT SHORTING BLACK MONDAY

The U.S stock market experienced its largest 1-day percentage decline ever on Black Monday of 1987. This was the most shocking fall the world had seen at that point, and even up to today, no 1-day decline has ever matched Black Monday.

Betting on a black swan event netted Paul Tudor Jones $100 million in profits.

1The 22.6% drop in the Dow in 1987 has not been rivaled even up to 2017.
Source: stock-market-crash.net

Paul Tudor Jones shorted the stock market, tripling his money, and making US$100 million on that trade while the Dow Jones plummeted 22%.

 

 

5) ANDREW HALL – $100 MILLION PROFIT BETTING ON OIL

While working for Citigroup, Andrew Hall predicted a 5-year bull-run in oil from 2003-2008, and made the appropriate trades. Oil went from $30 to $100, and Hall brought with him $100 million as part of his compensation plan.

Andrew Hall made it big on oil in his career at Citigroup.

jAndrew Hall at a conference in September 2016.
Source: Forbes

Aside from this brilliance, he reportedly bought 1 million barrels of physical oil in 2009, and stored it, hoping that oil would rise greatly. It did, and from 2009-2011, oil went from $50 to $100. However, his oil fund hasn’t been doing well in the past 5-6 years, and he has had to repeatedly explain the lack of profits to investors.

 

6) DAVID TEPPER – $4 BILLION PROFITS BUYING BANK STOCKS

David Tepper’s strategy was simple; buy low, sell high. In early 2009, he scooped up big banks like Citigroup and Bank of America, and saw them quadruple and triple in value from their bottoms in 2009.

Nothing spectacular; buy low, sell high.

These trades earned $7 billion for Tepper’s hedge fund. His personal compensation was $4 billion.

 

7) LOUIS BACON – 86% RETURNS BETTING SADDAM HUSSEIN WOULD INVADE KUWAIT

Louis Bacon went long on oil, short on stocks in the 1990s because of this geopolitical situation. Later, he also correctly bet that the U.S. would quickly defeat Iraq and the oil market would recover.

Bacon’s event-based bets rewarded him handsomely.

1Louis Bacon explaining what he knows best; geopolitical event trading.
Source: Quotesgram

His hedge fund returned 86% that year because of these trades. Although his strategy is somewhat unconventional, he has excelled in it and carved a niche for himself.

 

AFTER READING THIS, WHAT’S NEXT?

Many of these traders had decades of trading experience under their belts. Although they all seem like they had a great stroke of luck or a brief moment of brilliance, the preparation and practice that they went through was thorough and gruelling.

I hope that these stories of real traders would motivate you to continue at your game, brush up your skills, engage the financial markets, and stay up-to-date with what’s going on.

 

RESEARCH SOURCES & REFERENCES

investopedia.com/articles/forex/08/greatest-currency-trades.asp
commodityhq.com/education/5-legendary-commodity-investors/
businessinsider.com/greatest-trades-in-wall-street-history-2013-2
ibtimes.com/top-10-greatest-trades-all-time-253039
cabotwealth.com/daily/options-trading/the-greatest-options-trade-i-ever-saw/

The Top Hedge Funds of 2016 Share Their Best Bets for This Year (With New Charts & Examples)

Bloomberg recently did a good cover on what hedge fund managers are looking out for in 2017. The general consensus is clear; the market is uncertain, and world events are causing markets to react in unexpected ways.

“You’re going to have to take way more risk today in order to try to make outsize gains versus a year ago,” -Hanif Mamdani, PH&N Absolute Return Fund

I found the article to be pretty insightful, with a handful of key take-aways. To make it easier for my readers, I’ve broken up the article into easy-to-digest sections, and added some charts and examples to make it clearer. Here we go:

1. Distressed Energy Companies

Hedge funds specializing in purchasing companies that are on the verge of collapse, actually profited from the rise in oil prices last year. Companies that were in the red started to turn profitable, and after purchasing companies at ultra-cheap prices, these assets were starting to bring in significant capital gains for hedge funds. Even though oil has risen significantly, hedge fund managers still see the potential for more gains.

It’s interesting to look at the related ETFs for oil and gas companies. I’ve pulled out 2 charts of U.S Oil & Gas company ETFs (XES and IEO). The gains over the year are impressive.

The charts above summarize the oil and gas sector for the year of 2016.

On the technical side, the Oil & Gas sector is still on an uptrend. It is prudent to remain bullish when the market is still trending up. It’s interesting that XES has broken out of a wedge, and looks to be gathering bullish momentum.

In the longer term, oil & gas companies seem to be picking up momentum.

 


A few weeks ago, I was invited to give a talk at the Singapore Stock Exchange (SGX) on the Offshore & Marine sector, and Keppel Corp was one of our top picks. 

2. “Global Macro Deceleration”

Some hedge fund managers are positioning themselves for the worst. For example, a border tax in the U.S could “cause a global depression and a major equity market decline,” says Carlson Capital’s Black Diamond Thematic Fund. They’re waiting for commodities to “correct meaningfully” (meaning a decline in commodity prices), and looking to scoop up good stocks at the bottom of the market decline.

Traditionally, sector rotation strategists have sworn by investing in stocks like semiconductors, industrials and miners during full-blown bear markets. These stocks are famous for having high volatility and are not for the faint-hearted. A famous example, Caterpillar Inc, is shown below:


Heavy industrials like Caterpillar Inc tend to move cyclically with the economy. Notice the 6 big swing it has had since 2012!

3. Long High-Yield Corporate Bonds Amidst Rising Interest Rates

Some hedge funds are betting on higher-yield corporate bonds rising during this period. High-yield bonds typically have both a short maturity and high coupon rate. With interest rates expected to rise in the coming decade, bond prices are likely to fall and bond holders will actually be worse off (Economics 101!). However, with the shorter maturity, higher-yield corporate bonds become more attractive as they are less exposed to the beating by rising interest rates. Bearing in mind these ideas, it is understandable why these have been attractive to institutional investors in the past year.


I’ve inserted a little-known ETF, “HYG”, a high-yield corporate bond ETF that tracks the prices of high-yield corporate bonds. You can see that the bear trend sharply reversed at the turn of 2016 and has been rising steadily since. The uptrend is still in force, and some hedge fund managers are looking to speculate on a variety of interest-rate products.

What They’re Saying:

In summary, what we notice to be the consensus about the market in 2017 is this:

  • Heightened interest rate, inflation rate, and economic volatility
  • Renewed interest in unconventional investment strategies

That being said, it’s important to keep yourself updated and continually learning about financial markets. In such a unique market climate, it would serve you well to continue reading up and knowing what market participants are paying attention to.

Want to Learn How to Tackle the Markets?

Join us for a 3-hour intensive “Trading Foundation Workshop” where you will learn all the necessary skills, and witness firsthand live trading, where many of our new attendees managed to make some profits from their very first trade! 😀

Register now: http://synapsetrading.com/trading-foundation-workshop/

 

Research Sources:

bloomberg.com/news/articles/2017-02-28/the-top-hedge-funds-of-2016-share-their-best-bets-for-this-year

Why Are More & More Singaporeans Switching from Stocks to Forex?

asd

LOW VOLUME MAKES IT CHALLENGING

The volume of stocks traded on the SGX has been falling over the years.

The SGX has been plagued by weak volumes; well-known brands like Tiger Airways, OSIM, and Eu Yan Sang have left the exchange. In one article I read, a stock broker told The Straits Times that “stockbroking is looking like a sunset profession now”.

As for the number of IPOs?

Nov 2016: 1

Aug 2016: 2

Jul 2016: 6

Jun 2016: 1

May 2016: 1

Apr 2016: 1

sgxSince the start of 2016, trading volumes have been lacklustre.
Source: ChannelNewsAsia

Not only has volume been lacklustre; the Singapore Straits Times Index has been hovering sideways for most of 2016. Intra-day trading is an impossibility for many because of the huge amount of funds needed to trade stocks in and out.

SAVE MONEY 7 TIMES BY MOVING TO FOREX TRADING

$ – Save Initial ‘Tuition’ Fees

Trade small, make mistakes with small sums of money.

$$ – Save on commissions

Zero commissions, period.

$$$ – Track your stats and make changes

Use myfxbook to track your statistics, and adjust your strategy accordingly.

$$$$ – Charts are free

Pay nothing for charts, forever.

$$$$$ – Trade only when you are not working

24/7 market allows you to choose to trade only when you are free; won’t have to sacrifice your job.

$$$$$$ – Market volatility known ahead of time

Use the forex calendar to know when your forex pair will encounter volatility; no more rude news shocks.

$$$$$$$ – Accumulate expertise cheaply

No need to wait years or pay market strategists to test if your strategy works; try it out on past charts, execute it ‘live’, and see how it goes.

IT’S CRAZY; I DON’T UNDERSTAND WHY PEOPLE HATE FOREX

Some people quip that the forex market is more difficult to trade than the stock market. I beg to differ, because it is your circle of competence that determines your success, not the actual characteristics of the market.

You get to start with as little as $500.

In the Forex market, you are entitled to ‘get a feel of the game’ by risking a few dollars per trade. Most brokers allow you to trade 0.01 lots, which is $0.10 per pip on average!

The quickest way to rack up trading experience is to make many trades and check out the statistics behind your trades. After all, it’s a numbers’ game: with a properly developed trading edge, your account should have a positive expectation and profits should be the norm over the long-run.

You trade ‘live’ and get skin in the game.

There’s this huge debate about ‘live’ accounts versus demo accounts. Here’s the solution: start with a ‘live’ account right from the beginning. Get yourself into the reality of trading, risking money on a daily basis. Sooner or later you will get used to the risk that is inherent to the game.

By learning to make many decisions and experiencing all the different conditions of the market, you would become seasoned enough to trade a bigger size, and fine-tune your own trading strategy. I like what Tom Sosnoff said about learning to trade: “Trade small, trade often.”

No commission charges!

Forex has no commission charges. This may come as a shocker to the stock trader, but for forex traders it is a constant reality. This reduces the ‘tuition fees’ you need to pay to the market as a result of making trades.

Many new traders make any of the following mistakes:

  • Trading the wrong lot size (1.00 instead of 0.10, causing too big a trade size)
  • Going short instead of long
  • Entering a trade only to realize the market is closed

Yes! These mistakes may sound silly, but every trader who has had skin in the game would understand what I just said.

24/7 market; choose when you want to trade.

The great thing about Forex is that you can decide when to trade based on your schedule. That helps people who have punishing schedules: trading in the middle of the night, or during lunch, on a daily basis, works out to a trading schedule that accommodates your lifestyle needs.

 

THE SIMPLE 3 STEPS TO MITIGATE FOREX TRADING RISKS

Here are three simple steps to mitigate Forex trading risks:

  • Think in Percentages – takes the emotion out of the dollars
  • Find an Edge – only an edge gives you a profit in the long-run
  • Stick to One Style – don’t try to be everything at the start

asdToo many forex traders try to do everything at once. Focus on first becoming profitable; diversifying across trading styles can come later.

If you want to get started on forex trading, what’s stopping you? I’ve shown you 7 ways it can save you money in your trading career.

If not today, then when?

Cheers!

REFERENCES & RESEARCH SOURCES

straitstimes.com/business/companies-markets/sgx-turnover-plunges-27-to-206b-in-august
theindependent.sg/business/the-hollowing-of-the-singapore-stock-exchange-sgx/
channelnewsasia.com/news/business/singapore/sgx-reports-on-year/2406994.html
shareinvestor.com/ipo/index.html

Goldman Sach’s Top 6 Trading Ideas for 2017 + 3 Trade Ideas of My Own!

As I was preparing for the year ahead, I came across this interesting read in the news. Goldman Sachs had just released their top trade recommendations for the year 2017 as a response to a Trump win in the recent U.S elections, amid economic and political uncertainty. These trade ideas were birthed by recent developments in the major economies of the world, and I couldn’t help but recall what Goldman said in 2015, about 2016 being a year of economic gloom. Already, the S&P 500 is hovering at 2,200, up 9.4% for the year 2016.

goldmanImage Source: Bloomberg

“Goldman Sachs’ top strategists predict that stocks will once again disappoint next year. Goldman predicts the S&P 500 will go nowhere in the coming year, ending 2016 at 2,100.” – Fortune.com (November 2015)

Analysts can be wrong, and to be fair, very few expected the S&P to hit all-time highs. As traders know, we don’t expect to be right all the time. There were a number of great opportunities for bears to take profits even in the uptrend market we’ve seen this year. With information from 29 Nov 2016, the S&P 500 was about 100 points above what Goldman predicted for the year, and the graphic (a weekly chart of the S&P 500 index) below gives a clearer picture of this.

goldman-predictionImage Source: MetaTrader 4

I often read opinions of the market not because I need them, but because as a trader it is essential that I keep up to date with what the institutions are thinking. In the latest recommendation, Goldman recommended the following: (quoting the titles directly from Bloomberg’s report)

  1. “U.S. Dollar the Winner From Developed Market Populism”
  2. “Bet on Trump Getting More Upset About China’s currency”
  3. “Keep Calm and Carry the Right Emerging Market Currencies”
  4. “Long Emerging Market Stocks with ‘Insulated Exposure to Growth’ “
  5. “The Reflation Trade Has Legs”
  6. “Long European Dividend Growth”

What in the world do these ideas mean? Just in case it sounds too confusing, I have translated them into simpler bite-sized titbits below.

confusedImage Source: freepik.com

HERE ARE THE SIX TRADE IDEAS:

Trade Idea #1: Short the EUR/USD pair and GBP/USD pair

currencyImage Source: CleanFinancial.com

Goldman expects the US Dollar to rise. As such, shorting currency pairs with ‘USD’ at the back would express this adequately. Trump’s economic policies are expected to be growth-inducing. Stuff like great quantities of fiscal stimulus, protectionism (both in terms of foreign products and foreign people, haha) to boost local growth and employment, and not to forget, rising interest rates; all these increase demand for the US Dollar.

Uncertainty in Britain (because of the details of the Brexit process) and “populism in Europe” (another Donald Trump situation in Europe?) should “weigh on the pound and the euro”. Essentially, they mean the currency of Britain and Europe should be less in demand as compared to the US Dollar.

Trade Idea #2: Go long on the USD/CNY pair

globalImage Source: Globalriskinsights.com

China’s current currency regime is a fixed yuan with respect to a basket of other currencies, therefore a strong US Dollar should push the Yuan higher. Kind of the same logic as idea No.1.


Trade Idea #3:
Go long on emerging market currencies, like MXN, NOK and others

Following the U.S. election, a number of the higher-yielding currencies experienced a mini-meltdown. Nothing new; they’re just recommending taking a reversal trade on oversold currencies.

mxnnokHuge run-ups in USDMXN and USDNOK show major selling in emerging market currencies.
Image Source: MetaTrader 4


Trade Idea #4:
 Buy emerging market equities that don’t benefit much from U.S and China’s growth

Quite a straight-forward idea; countries like Brazil and India will probably continue to grow despite America and China’s antics, and they should be seen as safer places to park money.


Trade Idea #5:
 Bet on rising inflation by buying 10-year U.S. TIPS

Growth in the U.S should lead to re-introduction of inflationary pressures. Along with bullish expectations for energy prices, Goldman expects 2017 to be a year of inflation.


Trade Idea #6: 
Bet on rising dividends by buying Euro Stoxx 50 2018 dividend futures

Yes, you can not only bet on inflation, but on dividends rising. The Eurex actually offers futures contracts for people who want to bet on dividends rising. I’ve heard of other strange futures contracts like cheese, freight, gold volatility index futures, crack spread futures, but this is interesting.

In 2011, Goldman Sachs expressed their prediction for 2012 as “Overall, though, a volatile market, with little overall change, what we describe as ‘fat and flat,’ would be our central view for the year as a whole, but with things getting worse before they get better…”

In 2012, Goldman Sachs predicted the end of the gold bull market and an improved economy (as well as a bullish stock market), and accurately so. Well done for them. (check out the bullish move in 2013 in the chart below)

spAnd so Goldman Sachs predicted the bull market of 2013.
Image Source: MetaTrader 4

From an outsider’s point of view, it seems that Goldman could just be very, very good at predicting things. However, a quick google search will reveal that they are also incorrect in their calls at times, and this should humble any aspiring trader.

In my opinion, the end of the gold market of 2013 was a result of simple price action analysis. Statistically speaking, or using probabilistic reasoning, a sideways market was a reasonable prediction.

In the image below of the gold weekly chart, we can clearly see the multiple trend line breaks that 2012 was characterized by, and the subsequent sideways-bearish move in 2013. We are still in a sideways market on a multi-year basis.

bullGold experienced a bearish move after multiple trendline breaks in 2012.
Chart Source: MetaTrader 4

With all this in mind, what then should we be looking out for in 2017? Although trading themes are being churned out by analysts year after year, using simple price action strategies, the average investor can identify a few potential trade strategies to take for the upcoming year.

THREE SIMPLE IDEAS OF MY OWN:

1. U.S. STOCKS – CONTINUE BUYING ON DIPS

As most traders know, when the market is trending strongly, ride the trend until it proves itself otherwise. This simple strategy is what I applied on the USDJPY right after the recent U.S election results. In the chart below, we see 12 distinct buying opportunities spread out over 14 days. By simply riding on a strong uptrend, it is actually not too hard to watch your profits snowball – provided you have the patience to hold your trades.

usdjpy12 buying opportunities spotted on the USDJPY 1-hour chart
Chart Source: MetaTrader 4

On the S&P500, a strong trending bull market means buying on any dips is a profitable strategy. It doesn’t take a lot of analysis to realize that this is a high probability trade. Of course, as with any other trade, stop losses will take me out of the market immediately if the trend quickly reverses.

“What about a Santa Claus Rally?”

Graphic shows average monthly change in Standard and Poor’sChart Source: Stock Trader’s Almanac 2010

The statistics for Nov to Feb rallies in past years is pretty positive. Starting from 1950 to 2009, the average November-January rally brings in 4.2% returns. It seems buying on any dip from now till about February next year would be a statistically sound trade.

 

2. FADING OVERLY DEVALUED CURRENCIES

For those who aren’t aware, fading simply means taking the trade in the opposite direction of the trend. This seems like a contradiction to my previous trade idea, but it isn’t; in the context of clearly trending markets, going with the trend is the reasonable thing to do, and the trend sometimes lasts for much longer than one would expect. However, when the move is very, very quick, huge, and climactic, it has to end quickly as well.

In order to see the speed of the collapse, you can obtain intra-day charts of the USDCHF on that fateful day.

chfThe famous Swiss Franc crash and rebound of 2015.
Chart Source: MetaTrader 4

Returning to the devalued emerging market currencies, it is reasonable to assume that huge moves will come to an end, and a reversal trade (with a clear signal!) would make for a profitable bet.

 

3. PRUDENT ENTRIES IN OIL AND GOLD (WAIT!)

On the commodities front, the markets seem more sideways than trending. In such a case, it is prudent to look to trade near the extremes for a reasonable risk-reward ratio. Here’s the crude oil daily chart, and I’ve drawn two simple lines to aid in visual analysis:

crudeIn the case of crude oil, buying near the channel line makes sense.
Chart Source: MetaTrader 4

It’s hard to say where the crude oil could go. Although Goldman predicts it would pick up modestly, I’d rather wait for a strong bullish setup before making an entry. It’s perfectly fine if you are not comfortable entering the market; wait for clarity. It always comes.

For Gold, I had to zoom out a lot more on the charts to make sense of what was happening. Sure, it’s seen a huge dip recently (as a result of the U.S election), but I’ll wait for more confirmation before deciding what to do.

goldGold price chart from Sep 2013 to Nov 2016
Chart Source: MetaTrader 4

By the time the news reports a huge move in commodities, it’s too late. It’s much more logical to look at the charts yourself, and decide on an entry before the move happens; that’s the only way you can profit from the market.

WHAT ABOUT THE SINGAPORE STOCK MARKET?

The STI has been sideways for a couple of months now. This makes for very difficult trading, as the market changes direction many times within the month. I recommend staying clear of trading it until a clear trend develops.

stiChart Source: Tradingeconomics.com

For dollar-cost-averaging investors, this year would have been a very frustrating one indeed.

Using a simple excel sheet, I calculated what returns the investor would obtain if he had bought in any of the first six months this year, and held it to the current price (in November): (all prices used are closing prices for each month)

returnsBuyers of the Straits Times Index from March 2016 onwards would have seen measly returns.
Source: Yahoo finance (calculations done by author)

If you had bought the STI at the end of January, good for you; you would be up 11% on your investment. If you had bought at end February, you would be up 8.6% on your investment. However, the market situation isn’t good news for those who bought in the subsequent months, as shown in the diagram above. For those of you who need candlestick charts, here you go:

stiThe STI has been in a tight sideways market since July 2016; others may say it started in April 2016.
Chart Source: ChartNexus

WHERE DO WE GO FROM HERE?

I’ve shown that the Singapore market has been a tough one to trade in recent months, while opportunities were plentiful in the forex markets. Also, commodities have not asserted themselves in either direction yet, and the effect of a Trump presidency is still weighing heavily investors’ minds.

With that said, as I’ve always asserted, trading decisions are made using simple price action principles and must make logical sense. Goldman Sachs could be correct or wrong, and I could be right or wrong; what matters in the end is that the winning trades make more than the losing trades.

As Soros famously quips:

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – George Soros

 

RESEARCH SOURCES & REFERENCES

https://www.bloomberg.com/news/articles/2016-11-18/here-are-goldman-sachs-top-trade-ideas-for-2017
http://www.zerohedge.com/news/2016-11-17/goldman-reveals-its-top-trade-recommendations-2017
fortune.com/2015/11/25/goldman-sachs-stock-market-predictions-2016/
http://www.cleanfinancial.com/financial_images/trading/eur_usd_spread_betting_250x250.png
https://www.theguardian.com/business/2011/dec/22/goldman-sachs-forecast-for-2012
http://www.businessinsider.com/goldmans-2013-forecast-2012-12?IR=T&r=US&IR=T
http://www.investopedia.com/news/goldman-sachs-how-trade-first-year-trump-gs/