Friday Update – 28th February 2020

*Where have I been, what has been going on in the markets and what I plan to do next*

Happy Friday to you all! I apologise for the lack of content this week, I took a late notice trip out to the Swiss mountains for a few days of great skiing with good friends. Remember, it is important to take a break from trading every once in a while to clear those direction bias’s and come back with a fresh attitude to making money!

By luck, I managed to take a break away from trading on what has been the worst week in multiple years for most of the financial markets. Corona virus being the driving force for stocks selling off around the globe, Crude oil falling back to near $44 per barrel and Bond yields tumbling further.

What’s been going on in the markets?

I won’t state the obvious or repeat what is being said on every news outlet across the globe but in general, there has a been a major change in global risk sentiment due to the growing number of concerns surrounding the corona virus.

When the markets fall like this it occurs in stages.

  1. You first get the initial reaction to the fundamental news that is driving the markets. The algorithms begin to sell fast and the quick action speculators take their positions on the news. This will cause there first big daily bearish candles to form but there tends not to be enough volume to sustain the first sell off.
  2. The news then tends to develop and if there is substance to the fundamental driver of the markets, like corona virus and increased cases of infection and deaths then the selling will being to gain momentum. Institutions will start to lock in profits on longer term positioning and short cover long positions. You will also see more bearish speculators coming in to the market with increased confidence and volume.

This can be seen on the chart below. The initial sell off from $29,300 to $28,200 in mid-january 2020 was the first speculators and traders of the Corona virus news. However, it wasn’t sustained and stocks still went on to make new all time highs at circa $29,500.

Dow Jones Index simple line chart

You can also see on the chart above that when the news began to develop, the fundamental driver of the markets gained more traction and investor panic increased, and risk sentiment switches. This then lead to what you are seeing occur in the markets this week.

I explain, in great detail, what risk sentiment means and its effects on multiple financial instruments in my Mastering the Markets – Retail Trading Course.

Asset/InstrumentPrice Reaction
StocksDown
OilDown
GoldUp
Safe FX Currencies (CHF/JPY/USD)Up
Riskier FX Currencies (AUD/Exotics)Down
Fixed IncomeUp
Risk Sentiment Effects On Various Financial Instruments

When risk sentiment changes across the globe, you will see liquidity dry up and strong momentum and directional moves form.

What I plan to do next.

There is no need to rush in to any trades. This is the same rule to live by no matter what market conditions you are trading. Be patient, remain liquid and find the best trading opportunities you can.

Remember, the basic formula for success when trading is to BUY LOW and SELL HIGH. When markets sell -off they are just providing you with a better discounted rate to get involved. This includes stocks, currencies, commodities and fixed income. They are all assets with a value that can be quantified.

The Dow Jones is currently approximately 15% cheaper than it was at the beginning of this month. The FTSE 100 index is trading at a similar discount and US Crude Oil is now trading over 30% lower than the current yearly highs.

If you were willing to buy these assets at previous prices way above their current value then the current markets are showing real bargains.

Remember… if the price of an asset drops from $100 to $80 then that is a 20% decrease in value. However, if you were to then buy at $80 and the asset returns to its original value of $100 the potential gain is actually now 25%. This is the basics of profiting from long term investing.

The charts below show a few key price levels I am looking at on the following financial instruments.

Dow Jones weekly timeframe chart
US Crude Oil weekly timeframe chart

I will leave you with the selfie of me in the wilderness, far away from Corona Virus and the financial market dramas of the week! Enjoy the weekend and I shall be back next week with some more market analysis and trading education blog posts.

Useful Links:

All my technical analysis is done using the TradingView platform. You can get access via the link below.

https://tradingview.go2cloud.org/SH3bP

My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.

https://www.icmarkets.com/?camp=38537

FTMO Trader Funding Programme.

https://ftmo.com/?affiliates=335

Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.

DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

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