The word on everyone’s lips this week was ‘Brexit’ as the UK finally voted to leave the European Union but as you will have seen in previous blogs this is a news event that we have been monitoring, discussing and trading for months now so I do hope that these updates have helped put you in a more informed position to take full advantage of the related Forex movements. The powerful advantage we have, as traders following the economic news intimately, is that we can pick up on these critical events very early and start to take advantage of them well in advance of them becoming mainstream news (CLICK HERE to re-read our Brexit related blog from three months ago!).
That said the final result, which became clearer as the votes were gradually announced early Friday morning, proved to be the biggest catalyst yet as the GBP got absolutely crushed, sending the likes of GBPJPY lower by over 2500 pips and GBPUSD, by almost 2000, in a matter of hours! When you consider the average daily range for cable is around 150 pips, you can see just how severe the reaction to the event was. An unprecedented event/outcome like this created an unprecedented amount of volatility (across all asset classes) as the financial world reeled in the economic uncertainty of what this big event could now bring.
Being based in the UK, as many of you are too, it can sometimes be difficult to separate one’s self from the personal/emotional connection we may have with an event outcome like a Brexit. However, as hard as it may be, as a trader it is critical to take a big step back and look at things as neutrally and independently as possible. This way we can focus on the trading aspects and take emotion out of the decision making process because if we don’t we can then find ourselves holding unfavourable biases.
Why was the reaction so severe?
In the last blog post (CLICK HERE to read again) we discussed the concept of ‘speculation’ which essentially gives us a feel for what the major market participants are expecting from a major event. With this understanding we can then react to any outcome which deviates sharply from this expectation i.e. a major shock/surprise. So what was really interesting to see was that for the majority of last week, prior to the actual votes being counted and announced, most of the news flow supported a ‘remain’ vote and the GBP surged higher on this speculation. However as results unfolded in the early hours of Friday morning (London time), we got the view that a Brexit was becoming ever more likely. This provided the massive shock required to send the GBP sharply and dramatically lower across the board, rapidly wiping out all the progress it had made up until that point. In fact GBPUSD had even touched 1.50 on the upside just prior to the collapse, making the fall all the more dramatic!
This was an extreme example, as news events rarely move the markets to the same degree, but one which once again illustrates the sheer power and potential of understanding and trading news events.
How we planned for it!
The best way for me to illustrate this is to share some extracts from Thursdays ‘evening report’, sent to our mentoring members well in advance of the main event taking place, as it details our thoughts on what we (and the major players) expected to happen and then later down the article you will be able to see how we acted upon those exact thoughts. Planning well ahead defines a clear blueprint for how to trade certain outcomes and gives you the confidence to follow through and pull the trigger. I have included the most pertinent points of our planning below:
The rest as they say is history and the markets offered some fantastic returns for those available to trade them (see below).
And how we, and our members, traded it!
Ok so let’s back all of the above up with some trades taken in light of this historical event. Below you will see a snapshot of a couple of the trades we took as the votes started to come in, and point to a Brexit result, backing up everything discussed above…
And to top it all off, a few testimonials from several of our members who took some very nice returns as well…!
Thanks for the report. It was a definitely a night to remember. Fantastic pips made by you! Well done!
I also sold GBPUSD and I hadn’t thought about amending my 80pip target so it got hit within seconds (well it actually produced 95pips). I kept my stop loss at 40pips throughout. It’s what I start all my trades with in general. I placed a few more trades but I was quick to exit. Overall I collected 400pips but this morning I gave 40back so I’m 360 up for the night…
…Like you’ve been saying in your videos and reports, it’s an amazing learning experience and it’s part of the journey.”
I hope you are having a good weekend and catching up on your sleep.
What a fascinating couple of days! I personally couldn’t get near any of the sterling pairs due to margin requirements but I did manage to grab a couple of hundred pips trading the USDJPY so no complaints…
All the best.”
Finally, a word of warning!
As much as it is very easy to look back on the big moves on Friday we can’t ignore the fact that these market conditions were a lot more dangerous for us traders than normal. With the increased volatility, wider spreads, poorer execution and larger broker margin requirements it did make for much trickier trading. So as you will see below, in another extract from the trader reports, we had been urging members to heed strict risk management principles at all times.
As much as we want and actively encourage traders to take full advantage of big fundamentally driven moves we also feel it is our duty to outline the risks so that traders can adjust their approach accordingly. This way they are always approaching trades fully prepared. And, as the testimonials above confirm, some very nice returns can still be made even with strict risk management principles and so we urge the same approach to all of you…whether you are under our guidance or not. Just as boxers are told to ‘protect themselves at all times’ during a fight, we urge the same principle to be adopted when trading the markets.
We hope that after the last couple of blogs, that today’s post brings everything together for you. The Brexit, although an unconventional news event, was still one that could be prepared for and traded successfully.
Want to learn more?
Our online course and daily mentoring service are readily available but prices will be rising again soon. Here they bring you fully up to speed with the fundamental side of trading which is an absolutely essential component of a traders artillery. Links to both can be located below:
Until we speak next
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