Newsletter: 25 June 2023
What’s Going On:
Bank of England Surprises Markets
One of the big themes for markets over the last 18 months has been inflation – and the action taken by central banks to try and get this under control.
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Last week saw the latest rise by the UK’s Bank of England. It was larger than expected – and how one market reacted may well be a trading opportunity.
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The Bank of England was expected to raise rates last Thursday – just not by so much. The wide expectation was that the UK’s central bank would put its base rate up by 0.25% - so the 0.5% rise that they delivered was something of a surprise. This has put the UK rate at the highest since 2008 as UK inflation proves to be somewhat reluctant to drop at the same pace as some other economies.
This has led some, such as the global chief strategist at HSBC, to speculate that there could be more pain to come with the Bank perhaps having to jack up rates as high as 6%.
GBP/USD: Hourly Candles
There is always a lot of chat, speculation and navel-gazing around these sorts of events. But if we are trading, what matters is what the markets think. Earlier last week, the latest UK inflation data came out and this was expected to fall – but it didn’t.
This would usually be good for the pound – but it didn’t manage much of a rally against the US dollar. A higher-than-expected rate rise should also be good for the pound – but once again on Thursday, after a lunchtime spike, GBPUSD drifted as the day went on.
Given that these sorts of moves are meant to be positive for the pound, I just wondered whether some of the positivity towards GBP/USD at least has faded for the moment.
I went short the pound on Thursday afternoon (looking to profit from a slide), and it will be interesting to see where it goes this week. If the market breaks through the recent highs around 1.2850 then it looks like my trading idea is wrong. (It is worth mentioning that the pound did hit a 7 year+ high this week against the Japanese Yen).
GBP/JPY: Weekly Candles
Trading Tip:
Is Trading Actually Worth It?
It is something of a philosophical trading tip this week – but is trading actually worth the effort? All that time doing research; watching screens; following news; the stress of losing trades – why bother?
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I think for most people the reality is that it really isn’t. We know that most people are losing traders and they would be much better off closing their accounts and doing something else. But is there a better way?
Let’s me start by being blunt. I think when it comes to financial markets, an awful lot of people are just gamblers. They might not know it, but their behaviour shows it. Buying a bombed-out penny stock just because it is “so cheap” or piling into a crypto because it is the latest hot social media buzz. And these sort of behaviours get magnified in trading. Perhaps over-confident uninformed excessive risk taking is one way to describe it.
I think it benefits all of us to take a step back from trading now and again and spend more time learning to be a better investor. The timing of buys and sells is less important; you don’t have to spend as much time watching markets and are probably less bothered by excessive volatility.
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As we are almost halfway through the year these are some of the headline numbers from some major markets' performance so far:
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S&P500 +13.3%
NASDAQ100+ 36.1%
FTSE100 +0.1%
NIKKEI 225 +25.6%
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Apart from the FTSE it has been a year of stock market recovery and those are very solid numbers for the first half of the year. Of course there is no guarantee that the second half of 2023 will be positive, but as someone who has been trading for 25 years, and has been in the trading industry for the past two decades, I think most of us would benefit from looking at the bigger picture and spend more time on a long-term investment approach rather than trying to figure out where the market is going in the next couple of hours.
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Don’t let me give you the wrong impression - I absolutely love trading. It’s a game that plays out during the week with no end point – the market is always there. I mentioned in the livestream here, starting at 5:40 minutes in, that recent weeks have been my best trading period this year, with a great return on my trading account since early May (past performance is no guarantee of future performance).
Great runs tend not to last forever, and the last week has been a really scrappy week for my own trading.
But that is the reality of it, and I think the picture painted by many “trading gurus” is just false. Done well, trading is boring. Most people are far too short term, with something like 50% of trades closed out within an hour of being opened.
Don't neglect the bigger picture in markets just because you are too busy looking at the next five minutes.
What Am I Trading:
12-Month Highs for Bitcoin
I’ve made no secret that I am quite sceptical about much of the cryptocurrency market. You could say it is one of the greatest recent inventions for separating the naïve from their money. But also, the trend for Bitcoin this year has been one of recovery and last week saw the grandfather of the crypto market hit its best levels since June 2022. So where next?
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I’m not going to use this section on Bitcoin to launch into one of my regular rants about how crypto has sucked in a whole bunch of people who just should not be trading. I don’t have a view on the future of money or the blockchain – I just try and look at Bitcoin like any other market.
And it is a market that has been in recovery all this year and that recovery was further confirmed over the last week when it hit levels not seen for a year, shaking off the correction that has been in place since April.
Bitcoin: Daily Candles
Perhaps in the short-term the strength has been overdone but for now I would be happy to be a buyer of the dip in Bitcoin. As far as I am concerned, it would need to break below at least 24,750 to suggest the recovery is over.
When it comes to the next targets, the highs from May last year might prove to be a problem – and they come in around 32,600. I think anyone who is waiting for 70,000 plus any time soon is going to be disappointed – but for now the recovery that has been going on for the best part of six months is still there.
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