Newsletter: 16 April 2023
What’s Going On:
US Inflation continues to slide
The big news last week was the latest US inflation data. The consumer price index (CPI) came in at 5% year on year which is the lowest seen since May 2021.
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Inflation is still the big theme for markets – specifically what does it mean for further interest rate rises. There was a fair bit of volatility across many markets – but one in particular is worth watching this week.
What was also interesting was later in the week the producer prices index (PPI) had a drop of 0.5% compared to the previous month. This is the largest drop for some years – so why is it important?
PPI measures the change in the price of goods sold by manufacturers, so it is considered a leading indicator for consumer price inflation. A fall here helps the argument that inflation should continue to ease.
US Dollar Index
So, what’s the market to watch here? For me it is the US dollar index, shown above.
This is one of my favourite markets - the US dollar against a basket of other currencies. It had a great run from May 2021 through to September 2022 – a very tradeable trend in both short and medium term time frames.
The sell-off since last year paused in early February just below 101. The weakness over the past month has brought it back to this level once again.
What now? Will the US dollar buyers step back in and mark this as an important base – or is the US dollar fall set to continue?
Friday did see a relatively strong move off that level, but it is only one day – the week ahead should give some more clues as to whether the worst of the slides in the dollar are behind it.
Trading Tip:
How much can you make from trading?
This is one of those questions similar to how long is a piece of string? If you are naïve enough to believe some of the hype, you might have come into trading thinking it is only a matter of time before you are doubling your money every month with a couple of casual clicks of your mouse, and the markets become your own personal cash dispenser.
The reality of course is a bit different - as anyone who has traded for any amount of time will now know. But I thought I would try and give some sensible answers.
Let’s start off with reality. Most people lose. Someone who was new to trading may think it is a 50/50 split but that is not the case.
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Typically, 75% of clients of brokers, and sometimes more, do not make money from trading. I think the importance of psychology to trading success can occasionally be over-estimated – but I do think that the natural reactions of our brains make us bad traders.
Most people snatch at profits and stick their head in the sand when they are losing, hoping it will turn around. We have to unlearn bad habits to give ourselves a chance.
So, a dose of reality. Let’s say you started trading today with £1,000. In a year’s time, after a bunch of trades, if you still have £1,000 in your account then you are doing better than the vast majority. This is not what most people want to hear, but it is the truth.
Like many people, I came into trading thinking I wasn’t going to be one of the losers because I was special. After a few losing years, I realized I wasn’t.
We need to be realistic about what profits we could make - never forgetting that most people lose. If we look at the performance of the professionals, according to BarclayHedge the average hedge fund generated net annualised returns of just over 7% in the five years to 2021.
If we are expecting to double our money every few months, then we are in for a rude awakening.
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But being consistently profitable and grinding out a steady profit can have a serious impact on our account. This is an example I use from my trading course – the impact of making 6% return every month on your account.
Now, 6% a month is hard enough. But you can see over the course of a year the net result is the account has doubled. Most people never get anywhere near this, because the amount of risk they are taking means just a few trades can have a devastating effect on their account balance.
The moral here is to try and get rich slowly.
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When it comes to my own trading, I try and be a realist. I talked a lot about my trading in the period from November to the end of January. My performance then was over 50% and you can read more about it here. But I don't expect to make 50% every three months, as much as I would love to.
We need to have realistic expectations in trading. Our only competition is ourselves. Manage the risk, follow the process, keep good records – and don’t expect to be making fortunes from day one.
Trading Course:
20% Discount Voucher For April
I've been running my trading course for a couple of years now.
It has received 5-star Trust Pilot Reviews, I cover both short- and medium-term trading approaches – and provide ongoing support via live webinars and a WhatsApp group, updated daily.
To coincide with the launch of this new website, I am offering a 20% discount off any of the course packages, if you join before the end of April.
Just use the code APRIL20 when purchasing. You can see the course packages here.
If you have any questions, feel free to get in touch.
What Am I Trading:
Long the S&P & the Cows
It has been a bit of a scrappy month for US indices so far in April. Last week saw plenty of volatility on the various news announcements – but a lot of noise with no real overall direction.
I ended up buying the dip in the S&P on Wednesday as a short-term trade, and am still holding as this week gets underway.
On the short-term charts, the trend in this market is still up as far as I am concerned - although progress has been difficult for much of April. Despite that, the S&P500 has so far been well underpinned by the 4060, level, the lows hit on 6 April.
When trading you never know how any individual trade is going to work out, but I was happy with the entry and risk/reward potential of this so am letting it run into this week.
I know that many people think trading is all about the shorter-term. But as I have said many times, medium term trading is less stressful, requires less work and I think is just as valid approach for many of us, me included. I’ve got a few medium-term trades running at the moment.
One of the best performers is Live Cattle.
Now I don’t know anything about live cattle, but I do know a trend when I see one.
This one has been in a solid trend on the daily charts since July of last year and I ended up buying in mid-February. Two months in, the market has carried on higher.
I have no idea how high it might go. I think picking targets is something that plenty of us are inclined to do - but some of my big winners in the past have far exceeded my initial expectations.
I am happy to just stick with the trend for as long as it continues.
Who Do I Trade With?
We are spoilt for choice when it comes to brokers and trading platforms and, on the face of it, there is not much to choose between one company and another. Which is an interesting point – if we are all looking at broadly speaking the same information then why do so many struggle to make money?
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An important consideration for me is the analysis of my OWN trades. Where can I improve, where do I have some possible bad habits - and how can I fix it. I made a short video explaining why I trade with who I do – and you can try them out too.
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You can watch the video here.
That's it for this week.
Good luck with your trading.​
​David
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