Giles Coghlan LLB, Lth, MA
Financial Source
There are easier and harder times to trade. Sometimes the outlook for an asset is so clear, so straightforward that the timing of your entry does not matter as the direction is clearly headed one way. However, there are other times when the direction of a market is genuinely uncertain. Now the job of a trader is not to make every call right, but instead to find your edge and execute it again and again. So, how can you use an edge if the markets are uncertain? This is one approach to take.
Look for the short-term deviations
Take the current run in equity markets. It looks like a bear market rally, but there is a range of opinions out there. Some analysts see the rally as the start of a new bull run and were adding longer-term positions. Still, others sold all their equity holdings seeing another sharp correction lower to come as US data slows. So, which one is it? Of course, you can have your view, and your view may be right, but here is a good alternative to just taking a ‘guess’. Trade the short-term deviations. If equity markets are surging higher and then an inflation print shows US inflation is higher than the maximum forecast then trade the short-term correction. Higher inflation for longer will mean the Fed will need to keep hiking interest rates which should weigh on stocks.
Look for key levels
Let’s say you wanted to take a view that the latest run in US stocks was a bear market rally. Then if you do so use a major technical level to lean against. Look for an obvious place to define and limit your risk. This way you can know that if stocks push higher past your stop then at least a major level was taken out. You also avoid the scenario where you are stuck in a market going against you. See below for a couple examples of major tech levels to lean against in the S&P500 and FTSE 100.
So, there are two key ways to trade uncertain markets. Trade short-term data deviations and use major technical levels if you want to take a decisive view on medium-term direction.
Learn more about HYCM
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.