Global Markets Seeing Heavy Risk Aversion – August 24th 2015
Before we get into the forex commentary for today I have a few videos I just finished that I wanted to share. As most of you are aware I started doing a review of all the valid trades that setup using the bank trading strategy. When I talk about taking trades from “levels” in these videos it is important to understand that these levels are pre-selected each night in the daily market preview that I do for members. In part #1 I show you what that looks like and you can see that the levels are selected down to the pip. Once you have the levels, the next thing to look for is whether or not a trade has setup from that point. Just because the market comes into one of those pre-selected manipulation points it DOES NOT mean that we place a trade. The entries I cover in these videos are strictly confirmation entries. The reason for this is the confirmation entry is mechanical and we can look back and see whether or not a trade setup from one of our levels. We can also see based on the rules of the entry as well as our trade management rules, whether or not the trade was winning or losing. If you did not get a chance to check out the May or June trade analysis you will find the link below. During the month of July we had a conservative net result of +31% based on 2% risk per trade.
Major Risk Aversion Starting To Take Hold
Last week started a long expected turn towards risk aversion in the markets. I’ve been preaching for literally months the danger in equities. During that time the US equity market was hovering near the highs and continued to do so for most of the last 5 months. Last week, that range low cracked and US equities broke new yearly lows. I’ve said hundreds of times that the price of equities should reflect the general health of the economy. When this does not happen one or the other will correct. This is not rocket science, this is pure history. Is this the start of the next crash? That’s a good question and something I cannot answer for certain. We do however have a history of past market sell offs to look back on for answers. What I’m about to say next is extremely important for everyone, but it is especially important for those with money in the market for their retirement.
History has shown us that the crash does not start and then continue without letup. Historically what we have seen happen in almost every market crash/correction is a first sell off that is extremely sharp and aggressive. Once that initial move is out of the way the market will begin to correct. If this is the top before the crash then that correction or pull back after this initial drop will be the last time to get out at a good price. This retracement has historically been in the 50-61.8% fib area and this will be the point you need to watch once the retace begins. As it comes back into this area, if the market begins to break down hard again you have a very good indication further downside is coming. If I was invested in equities I would wait for this pullback and any sign of aggressive reversal (heavy bearish close) back down would be my signal to get liquid. Many mutual funds offer a bond option…this is their “safe alternative”. Take a look at what happened to bonds in 2008, was it safe then? Making sure you have the option to go into something like cash would be my personal best choice and it would be a must for me.
Praying is not a strategy. The fact is no one cares about your money like you, and no one but you is responsible for your money!
Euro Continues Ridiculous Run
The EUR/USD continues it ridiculous run to the upside. Is this the short term high or are we going to see a further run to the upside? At this point it is difficult to pick a level to short from, but it does look like we are starting to form a potential upper manipulation point I would consider a short from. The key that I ask myself with a potential manipulation point is “where is the liquidity”. One of the great things about the EUR/USD right now is that we are breaking into new highs. Because of this, any upper high that forms will be a high liquidity level as there is no other viable stop loss location for the short term traders and thus it becomes a high liquidity point. As a result if the intention is to drive the market back down a retest and stop run of the previous high would be a great place to find liquidity to short into.
Its important to keep in mind that it does not guarantee a successful short. In fact last week on Friday I took a loss from a new upper manipulation point that formed. The market made a strong run off of the Asian highs during the European session. When we came back into those highs during the New York session the market created a stop run reversal short trade setup that I took. As you can see this trade resulted in a 20 pip loss. With that being said it is still an extremely high reward/risk trade setup that I will take every single time.
Today I’m still open on direction but the Euro has weak lower manipulation points and an upper manipulation point that has yet to fully form. Just based on the fact that we have ran so far so fast I do favor a short but long term momentum is still pointed to the upside so any short would be a day trade. My bias for the direction this week is definitely up, but I would not be surprised if we had 2 days of retracement before that happens. Like always I will be letting the market tell me what trade to take based on any valid setup from my pre-selected manipulation points.
GBP/USD Begins To Break Range Highs
Like the EUR/USD I do favor the long side on the GBP/USD for the rest of the week. This does not mean I will only look for a long trade but it does mean that I will be more conservative with the selection of upper manipulation points from which I would short from. At this point the only thing that would flip my bias is a break and hold below last weeks low. The GBP/USD has and continues to be very bullish in last weeks COT data with market positioning heavily biased towards getting out of the previously held Pound short and is just about to turn net long for the first time since early September of 2014.
Last week the GBP/USD was very disappointing for me. The reason I say that is we had some great manipulation points but the majority of the time we had no interaction with those points. If the direction for the week is going to be up then hopefully we will get a shot at the long side before it runs off. Remember that anytime the Pound makes a new high there is really nothing to stop it from continuing to run. As a result the current highs are very important in my opinion. To start the week I would still consider a short from the overall highs but a break and hold above that level will more than likely force me to trade the upside only. Stay tuned through the week for more updates.
Forex News For August 24th 2015
For the start of the week we have a day off in regards to economic news. Don’t get too comfortable as the rest of the week has at least one piece of economic data that is capable of spiking the market more than 15 pips.
One of the things that is going to be interesting this week is the US data. Core Durable Goods and Prelim GDP are both expected to be much better than the previous release. It is possible that this could hold the GBP/USD and EUR/USD back from any further move to the upside? Well, that has yet to be seen but a miss on these numbers will definitely create a catalyst for the further upside I’m looking for.
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