Newsletter:
2 September 2023
What’s Going On:
Oil Hits Fresh Highs For The Year
There has been some talk this year of an upcoming global recession – but the fact is that anybody who has been standing aside and waiting for this to happen has missed out on some good gains in various markets.
Some would view the oil price as a barometer of the state of the global economy – which I think is a reasonable position. Rising prices here - US crude is up 22% a barrel over the last two months – also suggests that the oil market does not fear a recession.
​
It has been something of a boring 2023 for oil, spending most of it stuck in a range. US crude would struggle to make much progress through the $83 mark and when it fell to below $70 the buyers would step back in.
US Crude Oil: Daily Candles
But this changed on Friday. It was a strong day for US crude and a barrel of oil closed at its best price since November 2022, helped along by expectations of upcoming supply cuts, which you can read more about here.
​
So-called “breakouts” like this can be interesting. Traditionally a breakout through an area that has been a problem is seen as positive, and the sign that a new trend could be starting. But trading life is seldom that simple and there is such a thing as the false breakout where a big level gets broken, only for the market to fall back into the previous range and return to being boring and sideways.
​
I think it’s going to be an interesting September for oil. Just the last week or so has seen a solid rise from around the $78 mark to above $86. For me, the test will be when we get a decent sell-off in this market. I will be looking to initially buy the dip under the assumption that there is still some strength left in this market. I will cover my thoughts in more detail in a video on the YouTube channel later this week.
Trading Tip:
The Importance Of The One Big Winning Trade
I thought I would come back to an old topic this week, as it has been one of the key things I have missed out on during August. One of the many mistakes that new traders make is closing winning trades too early. Plenty of us are familiar with the saying “let your profits run” but so few of us manage to do it in reality.
​
Traders get scared their profits will disappear and do not let a trade develop. It’s crucial for successful trading, let’s remind ourselves why.
​
Trading is hard
I think plenty of us come into it thinking that we are going to be right an awful lot of the time and the money is just going to flow into our trading account. But the reality is usually different and a lot of the time it can feel like one step forward and then one step back.
We have a winning trade, and then all that lovely profit – and perhaps more – is taken away in a losing trade.
​
In my own trading, I have said more than once that I am right on about six trades out of ten. But what makes the big difference is one or two big winners a month. For much of August I didn’t have a really big winner that went on to make a multiple of my risk.
​
For example, let’s say you buy oil with a 200-point stop. You trade the equivalent of $1 per point – so your risk if you get stopped out is $200.
​
Let’s say the trade turns out well and you end up coming out with, for example, a profit of $500. That trade ended up making 2.5x your risk, which is a decent winner in my opinion. One or two of these trades a month make a big difference to your trading performance.
Of course, the reality for most is their average winning trade is much smaller than the average losing trade and you can’t beat those maths unless you are right an awful lot of the time.
Which you probably won’t be
​
This shows there is much more to trading than “where do I buy or sell?”. I would argue that this is actually the least important part of the trade. What is far more important is risk control and managing the trade.
​
I would never say trading is easy – but just having one trade really run in your favour can make so much difference to your own P&L.
What Am I Trading:
A Strong Week for US Indices
The month of August was a choppier one for my own trading and the second half was much better than the first. One of the biggest winners for me in the month was buying the NASDAQ100 the week before last - and I came out of the trade on Friday.
​
I always like to have a NASDAQ or S&P trade on as these have had such strong trends this year. It is an index I will be watching closely this week for the next trading opportunity.
​
Both major US indices – the NASDAQ100 and S&P500 – were down for the month in August. As usual there were some big swings to give everyone the opportunity to make or lose some money. The NASDAQ100 had a range in excess of 1,200 points in August and, on one day (24 August), travelled through around 600 points in 24 hours.
NASDAQ100: 4 Hour Candles
As far as I am concerned, the trend in this market since the beginning of the year is still up. I am not going to start worrying about a bigger sell-off until, and if, it takes out 14,200. So, coming into September my approach is going to be looking for opportunities to buy the dips, with decent-sized stop-losses so I don't just get taken out in the noise of the market.
​
There was some volatility last Friday with the release of the latest US unemployment figures, the Non-Farm Payrolls. As with oil, what will be interesting for me is how far a sell-off goes in this market, assuming there is one. The big support from August is a long way away at the moment, down at 14,550. But there have been various pockets left on the way up to where it is now. Let’s see what the next week brings – bear in mind it is a holiday in the USA on Monday - although the US indices will usually be trading for at least some of the out of hours markets.
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.
​
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