Newsletter:
19 September 2023
What’s Going On:
Is Oil Set To Stoke Inflation Again?
Last time around I started things off with oil as the trend has been so strong – and it has continued to be the case since. For the month so far (and we are not even three weeks in) the price of oil has gained more than 10%.
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This Wednesday sees the latest interest rate decision by the US central bank, with most expecting no change this month. But if price rises for raw materials such as oil continue, what does this mean for other markets – and where might the opportunities be?
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This has been an incredible trend in oil. Since the end of June, the price has risen by $22, a rise of 30%. If you have been in the trade, it has been a great one – particularly over the past three weeks where the price has barely paused on the way upwards.
US Crude Oil: Daily Candles
What is going to be interesting is what happens if and when the price gets nearer to the highs from October and November. Back then, $94 a barrel or thereabouts was a real line in the sand.
The price turned and fell, trading below $65 by March of this year. Is this going to be the case this time around? It’s wait and see at the moment for me - all I know for now is that the uptrend in oil is still strong and any dips do not last long. It is too soon in my own trading to start looking for the top.
But if a higher oil price does start to ignite fears that higher inflation is coming back, one of the obvious markets to watch is the US dollar. My preferred way of tracking this is the US dollar index – the dollar against a basket of other currencies. This is another market that has risen strongly over the past couple of months.
US Dollar Index: Daily Candles
Last week saw the Dollar index at a six-month high, after struggling to gain any momentum for much of this year. Let’s remember – markets are always forward looking.
If traders think there could be further inflation and further interest rate rises to try and combat it – then the US dollar would be expected to benefit. It will be interesting to see how it performs over Wednesday’s rate decision and press conference in the USA.
Trading Tip:
Everything You Have Heard About Trading Is Probably Wrong
A big sweeping statement to start this section! And despite the clickbait, I do believe it. I have been trading for 25 years and have made all the same mistakes as you – and probably some that you have yet to make.
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Retail trading is a much bigger industry now than many of us would have expected even 10 years ago. The likes of trading Apps; cryptocurrency; lockdowns have brought in many more lambs to the slaughter, expecting easy money and then quitting to lick their wounds. So where are most of them going wrong?
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There are lots of mistakes people make. One of the big ones is that many of us are all focused on the ENTRY point of the trade.
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Where do I get in?
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If I didn’t buy oil three weeks ago, what is the point of buying it now?
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The NASDAQ is up 40% year to date -I have really missed out; I am not going to trade it.
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Of course, entries play their part but let us not forget that what determines whether you make or lose money is the EXIT: where the trade is closed.
But most people are too focused on, for example, the RSI, moving average and Bollinger bands lining up for the “perfect” entry.
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*NEWSFLASH*
You will rarely buy the absolute low or sell-short the absolute high.
And it is not that important.
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We had a long chat about this in the WhatsApp group I run – more on that below.
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As a rule of thumb, I am always too early into my trades. There has not been a trade I have done in the last couple of months that took off within a few hours of me opening the position.
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Markets usually need time to move around a bit after you have placed a trade.
BUT something like 50% of trades that are placed by retail traders are closed within the first 60 minutes of opening them. They do not even give them a chance. It is no surprise that 70%+ lose. Just by giving trades a bit more time to work out can drastically improve your performance.
And sticking with that 50% number – around half of retail traders don’t use stop losses. To me this says they are not considering the possibility that they may be wrong on the trade. This is just gambling and trading based on hope.
I firmly believe that giving markets more time and having a sensible attitude to risk management will improve trading for the majority of people.
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But most people will continue to ignore this as they see themselves as a special case and will likely remain in the group who have a frustrating trading experience.
What Am I Trading:
Holding Fire Until The Rate Decision
I do have quite a few open trades at the moment, so I am not in too much of a hurry to do too much until the dust has settled after the US rate decision. One of the trades I came out of just today was in the US dollar index – and I think that is going to be a good place to focus for the rest of this week.
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As mentioned above, the trend in this market is still up – so what are the levels I am watching to put on a new position?
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If you have seen any of the videos I do on YouTube, you will know that my approach is to be a trend follower. There has been a solid trend in the dollar index since mid-July and I am definitely still in “buy the dip” mode here.
US Dollar Index: 4 Hour Candles
It is a market that has been edging lower over the past couple of days and I won’t be doing anything till probably Thursday. Over major announcements, such as interest rates, markets can go into “headless chicken” mode while it tries to figure out whether this is good or bad news. I would rather wait for things to calm down.
In the middle of this month the 104.40 level proved to be good support for the dollar index so that is one zone I will be watching to see if there is any buying interest should the market sell off to here. Of course, we need a plan for both directions and so the recent highs up at 105.40 are also interesting for a breakout trade.
I have definite rules for trading breakouts or bounces -you can find out more on my Trading Course. But I do think there will be some sort of opportunity in the dollar index as the week goes on and for now, I am still leaning towards buying the dip.
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 a previous update. I talk about trades I have open; trades I am thinking about and other interesting markets.
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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.
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That's it for this week.
Good luck with your trading.​
​David