Newsletter: 18 June 2023
What’s Going On:
The Bull Market Continues
It’s been another week of good strong gains in many stock markets. The broad-based US index the S&P500 hit its best level since April 2022 and on my side of the Atlantic the German Dax set fresh all-time highs.
​
These have been great markets to trade – defying some of the doom mongering in recent months about the impact any potential recession may have. But where next?
It’s been a great few weeks in markets if you are a trend follower. Stock indices like the NASDAQ; S&P; DAX; Nikkei have all pushed higher. There have also been big moves in currencies such as GBP/USD (14-month highs) and those without the dollar, such as CHF/JPY.
NASDAQ100: Daily Candles
It is great if you're in on these trends. As mentioned last week I have been long the NASDAQ since February and I’ve been in a DAX trade since April. But it can be difficult to jump on board when markets are running away like this – and the temptation for too many is to look to go short and get flattened as the bull market steam rollers over them – more on this later.
​
It is a big week for UK data in the days ahead. Wednesday sees the release of the latest inflation data, still a hot topic for markets and particularly in the UK.
Inflation is expected to drop - but not at the same sort of rate we have seen in the US. It will be interesting to see how the pound reacts, after GBP/USD hit its best levels this week since April 2022.
GBP/USD: Weekly Candles
And then on the Thursday it is the interest rate decision from the Bank of England. The broad expectation is for a rise of 25 basis points, knocking the UK base rate up to 4.75%. As usual with these announcements, it is not so much the change that is important as that is widely expected – it is the narrative and any hints around what could be set to come further down the line.
Trading Tip:
The Mistake That People Cannot Stop Making
Like I said at the beginning this has been a great couple of weeks for trend following in markets. All sorts of assets have accelerated their trends and shown real momentum - which is usually great for trading.
​
But I would be willing to bet that it has been a losing couple of weeks for most people out there. And the reason for this is as old as trading itself.
​
I make no excuse for repeating one of my favourite lines – most traders lose. More than 70% of retail traders lose money - this will never change, and the big stumbling block is our own psychology. Let’s look at the S&P500.
S&P500:Daily Candles
This market has been in a recovery trend since October last year. It has really accelerated since the third week of May. And which way are many clients positioned? Here is a snapshot from a popular broker.
Of course, most people are betting on a fall as the market rips higher.
If we take a look at another strong trending market, the trade I am in CHF/JPY, it is even more extreme.
88% of those are short
People cannot follow trends. If you decide to sell a market that is racing higher – or, on the flipside, buy a market that is falling like a stone – what are the chances that you pinpoint the exact turning point?
It’s highly unlikely.
These counter trend traders would do themselves – and their trading accounts – a big favour by just positioning themselves with the flow of the market. Of course, it doesn’t work all the time – but I would suggest it has a better probability than trying to call major turning points.
It is not rocket science. But it does make trading a bit easier.
What Am I Trading:
What Next For The US Dollar
As a trend follower, it's been a good run in my own trading over the past six weeks. I trade a mixture of medium-term positions – that run for weeks and months and shorter-term trades that usually last a couple of days to a week.
​
At the moment the tricky thing for me is what is going to happen with the US dollar as that has an impact on so money markets – but I think maybe there are opportunities if we take that out of the equation.
The US dollar is a tricky one at the moment for me. The market I always watch is the US Dollar index – the dollar against a basket of different currencies. There have been some great trends in this over the years. But recently it has all been a bit sideways.
When this eventually resolves itself – up or down – clearly it will have an impact on a whole host of other markets e.g., EUR; Gold; Copper etc.
US Dollar Index: Daily Candles
I mentioned in Friday’s livestream that I was currently in my biggest winning trade for the year so far and that is the Swiss Franc versus the Japanese Yen (CHF/JPY). This is another one of those markets that has had a great trend over different time frames and made all-time highs last week.
This did make me think about other markets, taking the US dollar out of the equation. There are many permutations of these – EUR/JPY for example is another that has had a great run in recent years.
EUR/JPY: Weekly Candles
The Japanese Yen has been very weak so for me in these markets the opportunity with the likes of EUR/JPY is to either buy into a break out and assume the strength is going to continue – or wait to see if there is a pullback.
​
It has been something of an extreme couple of weeks for some markets – what will be interesting in the weeks ahead is, if these markets start to give up some of their gains, where does the weakness stop? That could be the opportunity.
WhatsApp Group:
Open To All
Earlier this year I started a WhatsApp group for those who had attended my trading course. This was designed to be a channel where I would update my thoughts on the markets every day and answer any questions. This is now available for all to join.
Here’s a screenshot of a typical update from me – this was last Thursday. I talk about trades I have open; trades I am thinking about and other interesting markets.
​
If you would like to try the WhatsApp group for a month to see how it could help your trading approach, then follow this link, select WhatsApp Group and use the code EMAIL for a 20% discount off the first month’s subscription.
​
That's it for this week.
Good luck with your trading.​
​David