A shortened week of trading due to the U.S. Thanksgiving Holiday, allowed me to press on with preparations for 2022. I needed to do something as some of the time looking at my broker accounts was doing nothing for my maintaining my ultra-positive MINDSET.
I made a novice error earlier in the week leaping into a couple of new (CORE) POSITION trades. The initial error, entering too early, I could cope with regarding my trades initially moving against me BUT, this move was exacerbated by the B.1.1.529 South African coronavirus strain headlines that hit the Asian Markets on late Thanksgiving Day. I had no alternative but to cut losses.
The markets were wild, liquidity was thin, news on the strain was limited and it was a FEAR gripped move as headlines intensified, but in real terms most was just regurgitated headlines for dramatic effect.
The simple facts are the strain is out....
- Where has it gotten to already?
- It started in South Africa, and it has been noted in Hong Kong, Belgium, Botswana and the U.K. so far.
- How transmittable is this variant?
- Will the existing vaccines be effective against it?
- Are we heading into more lockdowns?
- Transport and Hospitality stocks were hit straightaway?
- The uncertainty of the power of the strain which has 32 mutations means from a virologist’s perspective... Christmas has arrived early!
- The World Health Authorisation (WHO) says it will take two weeks to get the full facts of the variant.
- How do the markets cope with that?
Market makers, Bank analysts and the thousands of pen pushing, jotter blotters across the globe will be revising all their Central Bank tightening predications, which, had in many areas, reached the realms of ridiculous vis-à-vis who could predict the fastest rate of tightening.
The simple truth here is that as usual most of us got caught up in the market persistent drive of FEAR and GREED. The belief was that the pandemic was in the rear-view mirror. The facts are somewhat different. Until this pandemic is under complete control with 90%+ of the population vaccinated, these flare ups of evolving strains will just continue.
There are so many people who do not want to be vaccinated, in fact there are hundreds of thousands who do not even believe that there is a global pandemic in play. Unless there is a massive instant death rate following a lethal strain, we will just have to learn to live with Covid-19 until the whole world is vaccinated and then at that point in time take a fresh look. At the current rate that will be 12 months from now at best.
From a trading perspective, it was a great week until last Friday morning. I lost pips on EUR/CAD and EUR/NZD shorts and EUR/CHF long trades but added back losses nicely via long EUR/AUD.
However, despite the losses the week resulted in just a net loss of c.250 pips. I am very grateful; it could have been much worse.
At the end of last week, THE WEEKLY FX PREMIUM 2021 update was as follows: -
NOVEMBER 2021 to date:
Total net pips = +1,255 pips
YEAR TO DATE 2021:
Total net pips = +17,410 pips
(112.47% of my 2021 objective)
1: THE SOAPBOX
ARE ALL BETS OFF... AGAIN?
Last Thursday, I had the subject matter of the SOAPBOX down to two options. Then we had Friday morning and both of those options I have moved into THE EDGE (Section 2) for FX PREMIUM subscribers only.
So, I want to provide just a short piece away from Covid-19, taking a swipe at U.S. Bank and other Financial Business analysts over their Central Bank tightening expectations. This time though I want to look at it from the FED’s perspective.
What I am writing now, is somewhat different from what I would have written two days ago on this subject. It was Goldman Sachs chief U.S. equity strategist David Kostin, who basically put out the BULLISH of all BULL calls on the U.S. economy, the S&P500 and U.S. GDP, also claiming that the FED would TAPER faster and raise interest rate faster.
I can appreciate all the research, compilation of data, the time spent formatting, and effort into getting this opinion to the market... within 48 hours it’s 100% useless.
Last week, I listed many U.S. Banks opinions on the future FED interest rate policy options and at the end of the SOAPBOX I basically said we trade this carefully as we do not know what is really driving the FED. One week later ARE ALL BETS OFF.... AGAIN?
From my perspective the market tells the FED what it thinks, BUT, in real terms should we not be looking at this issue from the position of what can the FED actually deliver.
The market should listen to the ECB and take a leaf out of their playbook.
“Lower for longer” ... feck that “Lower Forever” is the way forward.
This approach shuts up all the market commentaries and bullsh*t in one’s inbox.
When we see what’s in the picture below and we receive confirmation that hell has in fact frozen over, the ECB will be talking about Monetary Policy tightening.
Will we actually see FED interest rate hikes in 2022?
My thoughts were not as the FED always disappoints and now despite a buoyant and resilient U.S. economy, the FEAR that this new strain brings will be enough for speculation and uncertainty about employment numbers. I can see TAPERING completing but interest rate hikes, I am NOT so sure. A lot of water will need to flow under the bridge first. This FED will NOT take a gamble; make any move on a tightening policy without 100% facts in front of them. There are far too many uncertainties.
The market expectations of interest rate hikes in the U.S. covered from 3 hikes in 2022, and a further 4 in 2023. Last Friday morning BLOOMBERG quoted a few banks who removed one x 2022 hike and added it into 2023.
Come on, give me a break. I do not want to overreact but there are more reasons not to tighten FED policy, and more reasons to slow down TAPERING than increase it, given the news flows and the uncertainties that this brings.
- 1.1.529 is here. We need to know where it is?
(So far, South Africa, Botswana, U.K. Hong Kong, and Belgium)
- There are lockdowns in Europe that will affect SUPPLY CHAINS that are already distressed.
- Travel Bans = a direct and swift effect on Hospitality, Airlines and Cruise lines. This will affect employment levels.
- Employment is part of the FED’s dual mandate and if they feel it will be pressured, a dovish FED will wait for the data.
- Like other Central Banks the FED papered over the cracks by applying Quantitative Easing (QE) to a health issue?
- Central Bank policies did no more than encourage inflation. Through SUPPLY CHAIN DISTRIBUTION issues, we have a yield curve based upon demand inflation. In addition, we have wage inflation.
Nearly all Central Banks called inflation TRANSITORY.... This is simply not true and we now inflation is beyond a Central Bank sphere of influence.
- The cherry on the cake is that as a result of all the accommodative policies led by Governments and Central Banks, we now have a real DEFICIT and DEBT problem that looks like it will be made larger if this new strain leads us backwards again.
and finally from a Forex perspective....
- The USD weakened when the JPY and CHF strengthened in the flight to safety. One would have expected USD strength as a result of a major pandemic development.
Hers’s my take...
The major market majors are unwinding their “bets” on FED rate hikes. I cannot think why the EUR would strengthen, it has absolutely no reason to strengthen of its own accord.
- To receive and understand the scope of the B.1.1.529 strain, the World Health Organisation says it will take about two weeks.
- Pfizer says it would take c.100 days to produce and test an amended vaccine to combat B.1.1.529 should the existing vaccines not provide sufficient efficacy rates. New vaccine Q2 2022.
- It will soon be Christmas.... in 29 days in fact. The silly season starts in 6 or 7 days’ time.
- Are Governments going to lockdown into Christmas?
I think NOT...
- If we cannot fight the new strain with the old vaccines, we are in the shit.
- I think Governments will do anything and everything once again to avoid lockdowns. By the time they act it will be too late. You cannot see this enemy. The only cure is isolation.
- The United Nations failed to have the world vaccinated, the bigger, countries, those with influence failed to get the whole world vaccinated. Until we achieve this, covid flare ups will happen over and over again.
- By the time we find out all the data required it may be too late to avoid a repeat of March 2020 in January 2022.
I think it makes sense to hold off on major new positions until we get a sense of real perspective. Trying to establish levels just after thin markets is a wee bit crazy.
There was no consensus in my mind last weekend vis-à-vis FED actions and this week it is the Health Authorities that need to step up.
Not sure what all this means right now for the Central Banks and their meetings in December. One thing for sure, sit back get the data first. As seen with the EUR/USD last Friday morning, the reaction was not as one thought it would be and the commodity crosses in particular across the board without exception went wild.
If you want to find what I am trading, you will need to subscribe to the WEEKLY FX PREMIUM. I will be giving nothing away in this forum. (https://wwww.weeklyfxdrivethru.com)
2: THE EDGE
(This section of the blog is exclusive for WEEKLY FX PREMIUM subscribers)
2.2: JEROME POWELL GETS THE NOD TO CONTINUE:
2.3: EUROPE - COVID RESURCHANGE:
EUROPE DROPS DEEPER DOWN THE HOLE:
2.4: MEANWHILE, DOWN-UNDER THE ANTIPODEANS MOVE FORWARD:
2.4.2: NEW ZEALAND:
2.5: WHAT NOW REGARDING TRADING INTO THE YEAR END?
3: THE MACRO / FUNDAMENTAL VIEW
This short section of the blog looks forward. I share my macro / fundamental thoughts and views for the coming 3-6 months on factors to consider from my Macro, Fundamental and Geo-Political perspective.
Below are a list of bullet points, that are as relevant today as they were several weeks ago.
- Supply Chain issues continue – no end in sight soon
- Shortages risks
- Inflation risks appear far from TRANSITORY
- Energy Crisis
- Zero Growth
- Credit Default risks
- Debt issues
- Unemployment / Jobs
- Pandemic 4th wave lockdowns in Europe
(Austria, The Netherlands, Belgium, and Germany on the brink)
- New South African virus strain discovered
(also reported in Hong Kong, Belgium, Botswana and the U.K.)
- Where else is it?
- Pandemic cases numbers rising once again
- Pandemic death rates increasing
- ICU Beds in shorter supply
- Lots of Health Workers leaving industry due to stress issues.
A little more meat to add to the bullet points...
The new covid strain discovered in South Africa now counts for 90% of all South African cases. Vaccination rates in South Africa are low less than 30% so transmission has been swift as this new strain is far more contagious.
For the coming weeks unless we receive a swift rebuttal from Health authorities playing down the strains contagious capabilities and the efficacy of the existing vaccines, we will potentially see the markets run wild on the back of uncertainty. The World Health Organisation have been quoted as stating it will take at least two weeks to get the full facts and knowledge of the new strain, for now known affectionately as B.1.1.529.
Any future increase in lockdowns will only fuel the SUPPLY CHAIN issues and drive-up inflation pressures. The question for me revolves around the consumers desire to spend once the Christmas holidays are gone.
INFLATION, SUPPLY CHAIN ISSUES and ENERGY PRICES will be under intense scrutiny moving forward and will in my opinion drive the media headlines in between the pandemic news.
The Central Bank interest rate hiking cycles that have been the only headline in town over the past few weeks, I think will take a back seat given the pandemic uncertainty.
Although it will be delayed, inflation pressures will intensify however, THE CENTRAL BANK DIVERGENCE TRADE is the way forward for me as a long-term trader. The only issue I have will now face a RACE TO THE TOP, instead of the previous 12 years of the Central Bank interest rate policy competition of THE RACE TO THE BOTTOM?
Maybe the ECB has it right.... “Lower for longer... Fuck that Lower forever!”
It is too early to say, but if the recovery stalls. Travel and Hospitality will be hit very hard. Market accommodative policies will be back again. With Job vacancies at all-time highs those who may have to leave hospitality may switch and never go back, which will be a huge problem further down the road.
Markets do overreact.
To quote a phrase well used in the “Wild West” – “Shoot first asked questions later”. The markets feed on FEAR and GREED. Right now, we have FEAR driven by uncertainty.
The news cycle is moving fast, and many will use the B.1.1.529 strain as an excuse to wind back positions and commentaries about both market expectations and possible FED tightening.
So, we will probably be on hold and trade mostly sideways thru the end of the year once the dust settles. BUT, never rule out the BUY THE DIP mentality that exists on Wall Street.
If you resonate with my long-term MACRO THOUGHTS and want to get into the trades with me as I develop positions, you will need to subscribe to the WEEKLY FX PREMIUM at https://www.weeklyfxdrivethru.com
4: TRADING PSYCHOLOGY
For me, TRADING PSYCHOLOGY is a very important key aspect of trading that is often misunderstood or just ignored. How we use our conscious and unconscious minds when trading is crucial to our longer-term trading successes.
Over the coming weeks, it is my intention to cover areas and aspects of trading that may be new to many readers. Sometimes things can be right in front of us, and we cannot see it.
HEAD MANAGEMENT and HEAD MANAGEMENT strategies for consistent success in trading is crucial to long-term success.
SOME TIPS TO KNOW
Over the coming blogs I will be adding to this week’s piece to build up a small library of “Tips” that in my mind you should be aware of regarding TRADING PSYCHOLOGY or as I prefer to call it HEAD MANAGEMENT
It’s very hard when discussing this subject not to be in abstract. To a large extent it is the nature of the beast, when dealing with emotions and irrationality.
However, no knowledge, no matter how abstract, is worth diddly-squat unless it can be broken down into actionable tips.
So, here I go....
1. DON’T TRADE WITH MONEY THAT YOU CANNOT AFFORD TO LOSE:
Unlike investing, trading happens mostly in the shorter time frames and involves a much larger number of buys and sells. This by its very nature means that a lot of your trades are potentially going to lose money. This is unavoidable and if the number of positive trades out number those that end up negative usually that’s a good sign to begin with.
What I have said only comes true is proper RISK MANAGEMENT (POSITION SIZING) takes place. This means trading proportionally to the size of your broker account setting well managed stops in line with your broker account size. Trading with a TRADE PLAN... planning your trades and then TRADING YOUR PLAN.
Proper RISK MANAGEMENT limits you so that you do NOT experience huge losses that you cannot accommodate.
Over the past 10 years or so, I have had several conversations with FX Traders trying to trade Standard Lots on accounts under USD$10,000 in size, with multiple trades in play and limit orders stacked ready to go. Margin calls are just waiting to happen.
My approach is to stack multiple small trades with wider stops to give 100% flexibility when dealing with the “to’s and fro’s” of price volatility.
I think nothing of having 10 x 1 mini lot trades in play on one currency pair. If the RISK is acceptable, it is not an issue. I have greater flexibility to react.
If you trade with a small account you need to decide at the outset;
“Am I here for the long haul or do I want to place my account at risk from day one by trading too large a position size”.
A very basic question BUT I have seen it all and talked it through with numerous over-traders who were in FX with a get rich quick approach. Thankfully most of these traders have switched to Cryptocurrency trading.
Look, If I have a larger account to trade with fine, I can trade with a mixture of Mini and Standard lots. If you trade with less than USD$10,000 in your broker account, you should in my opinion trade with Micro and Mini lots. You cut your cloth accordingly, and over time with a sound RISK MANAGEMENT approach, your account should grow organically over the medium to longer-term.
Moving on and getting back on track...
Having proper RISK MANAGEMENT in place, also eliminates the RISK that you will wipe out your account if you chase bad trades through revenge trading etc.
It’s all about MINDSET.
Everything in life whether trading Forex or not is about your MINDSET and how you apply yourself.
You need a TRADE PLAN that encompasses many strategies to cover all the various currency pairs you intend to trade. I trade the GBP/NZD much different to the way that I approach trading the GBP/USD.
Forex Trading is for the long-term. If you do not share this view, I have now decided you are better off in Las Vegas.
Use a % RISK to apply to each trade based off the stop loss you have set, and this will dictate the POSITION SIZE of your trade. Over the past three/four years my position sizes have reduced in size as I have been trying to discipline myself to address RISK MANAGEMENT head on.
Besides limiting your losses, this will prevent you from stressing out too much over your trades. If you have too much tied up in one currency pair trade, I find it impossible to act rationally.
The bottom line is - it’s up to you. Only place in your broker account money that you would fritter away, money that you can afford to lose.
If you cannot afford to lose the money DO NOT TRADE FOREX.
5: CLOSING THOUGHTS
5.1: THE WEEKLY FX PREMIUM – SUBSCRIPTION INFORMATION:
If you like my approach to the market and are wondering what my trades are like from, a live perspective and what is the WEEKLY FX PREMIUM all about, check out my website https://wwww.weeklyfxdrivethru.com
The WEEKLY FX PREMIUM is my subscriber-based FX support option, which offers, subscribers’ full access to my suggested trade set-ups and my market commentaries via Twitter, TwitLonger and ZOOM.
Further information about how to subscribe to the WEEKLY FX PREMIUM is also located at the top of my welcome page at https://www.weeklyfxdrivethru.com under the “SUBSCRIBE” tab.
5.2: THE DRIVE THRU BLOG – DISTRIBUTION and TIMINGS:
Over the past few weeks the number of questions asked about timing and distribution of this blog have increased, so I thought it prudent to clarify.
DISTRIBUTION and TIMINGS:
- WEEKLY FX PREMIUM (Full Version) subscribers:
Saturday before 5PM New York Time
- FREE NEWSLETTER (Restricted Version) subscribers:
Sunday before Noon PM New York Time
- SOCIAL MEDIA and COFFEE SHOP
FREE NEWSLETTER (Restricted Versions):
Sunday before 3PM New York Time
Finally, putting this blog together prior to distribution takes many hours each week. There may be occasions that news jumps ahead of some of the content, so please excuse my commentary should that situation occur.
5.3: THE LAST DROP:
Always remember longevity in Forex trading can only be achieved through trading with a good MINDSET, RISK, TRADE and HEAD MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility. Trade with a TRADE PLAN, basically, plan your trades and Trade your Plan.
Finally, be GRATEFUL for your wins and COUNT THEM. Keep a POSITIVE MINDSET in play at all times, regardless of the market conditions.
The Pip Accumulator
BLOG VERSION: #433 FREE NEWSLETTER
DATE: 28th November 2021