Daily Alert – Friday 14th May 2021: GBP and equities make money

Mark NugentDaily Alert, May 2021

Daily Alert – Friday 14th May 2021: GBP and equities make money

Inflation fears came out of nowhere on Monday and lasted through Wednesday. On Thursday morning the markets decided that they may have over-reacted a tad and we saw a reversal that lasted into today. There’s still some ground to make up to get to the week’s opening prices, but the reversal was more than enough to trade successfully.

I placed pending long orders on the S&P500 and Japan225 on Wednesday night. The trigger price was around one third of the way up the Wednesday down candle, requiring a decent move up before entry. Any lower and I would have risked simple volatility taking me into the trade before the drop continued and I lost my risk capital. The S&P500 was triggered on Thursday and is currently 2.5x risk in the money. The Japan225 was not triggered but the Thursday candle was a massive pin bar – a tiny body with a huge wick to the downside showing the day ended with lots of buying pressure. In other words, a buying signal. I cancelled the pending order and entered at market at the Thursday close. This trade is currently 1.5x risk in the money. I will exit both before tonight’s close.

Trading reversals is often profitable. Providing you use pending orders which require pricing to go your way before entry, and your trigger price is not too close to the prevailing price, you can profit from knee jerk market over-reactions. There is no guarantee that any particular reversal will work for you. But they do more often than not and when they do they yield more than the risk on the trade. Remember, a 60/40 win/lose ratio and a reward/risk ratio of 2/1 on the winners turns £1000 risked (10 trades at £100 per trade) into £1200. Year-to-date, we are doing much better than this.

Equities are going to end the week down. Oil and GOLD have hardly moved. Currencies are difficult and have been for some time. However, the GBP was strong on Monday after for reasons stated previously and my GBPUSD long yielded 3.46 percent on risk of 1 percent. The EUR is directionless. The JPY grinds downwards as per its recent trend. So do the AUD and NZD, largely due to a large move down on Wednesday for reasons unknown. The CAD is up on the week on oil price expectations and has been strong recently, prompting the Bank of Canada to say if this continues they will take monetary action. The CAD shrugged that off. The USD is flat on the week but has been trending down for 6 weeks.

On the weekly chart, the GS Commodity Index weakens and breaks a 4-week bull run.

In summary, I should get out of this week around 6 to 7 percent up. That does not happen often but it happens often enough. We can spot these moves if we do a bit of reading and a bit of thinking and if we do that every day. It’s not a lot of work but it is work and it is daily. Well, Monday to Thursday.

Hindsight trade of the week was buying the GBP early and getting out midweek.

Have a great weekend and I’ll be back on Monday.

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