This is certainly not my first rodeo. On one third party site or another, I have analysed trade setups live during several widely watched high-volatility events in recent years. This includes the following:
EURGBP trade for the UK election.
This trade triggered within a pip of the expected zone, if I recall correctly. It certainly went very well.
The links to the original articles are in the review link above, which shows the results.
This link shows the results of the Trump election trades. Again, the links to the original articles are embedded in the summary.
The 2016 trade setups might be considered more impressive because the results of both the Brexit referendum and the Trump election were unexpected. Picking turning points being a somewhat of a house specialty for this trader, the trading methodology of systematically identifying statistically important zones worked out rather well.
Why, then, am I bringing all this up now?
As we begin the week of the UK’s 2017 elections, something strange is in the air. From a purely technical standpoint, there has been a trade setup to go short on XAUUSD (gold), as discussed here:
For a week that heralds several high volatility events (more on that later), that is suspicious, to say the least. Of course, I may well be making the mistake of calling the trade setup too early, Mondays being historically the worst performing day of the week for me personally. Nonetheless, it is a four-hourly trade. And short. One would have expected a long. Of course, price may well blow through the Blue Box, as it has done before, but the fact that it is there makes me uncomfortable. One can only hope that this trade triggers and moves swiftly a sufficient distance in our favour to trail the stop to breakeven in short order.
Even more suspicious is the potential trade setup short on the Dow Jones:
(Note: I do not currently consider this a proper trade setup for the UK election. It is a more general analytical piece. If I consider the trade setup likely, then I will publish a follow-up post on FXStreet.)
Logically, this makes more sense. In spite of the pleasure President Trump may derive from a runaway rising market (and there is no doubt that there is significant momentum behind this run), price is most definitely nearly at resistance. Although on the surface a Dow trade has nothing to do with a UK election, it is no secret (or at least an open one) that the equity markets of the world are linked. But wait – should a short on the equity markets not bring about a long in gold as capital flees to safety?
This apparent contradiction may create several possibilities. It is quite possible that one trade will trigger before the other, as part of the natural ebb and flow of prices. We still have sufficient time before Thursday, which is the election date. However, several key events will be occurring on 8th June 2017, and the UK election is only one of them. The second event will be the ECB announcement, will be closely watched for any signs of tapering off on QE, especially with improvements to the economic data in the Eurozone.
The third event is likely to be one that will catch pure technical traders by surprise. Former FBI Director Comey will be testifying before Congress on that day too, barring any last minute changes. Any effect from that event will most likely impact the equity markets, and through them the currencies.
In short, we are facing a triple threat event. Most likely, the ECB and Comey events will impact the markets first, with the UK election results only truly hitting late Thursday or early Friday. All are significant, but the markets may react unusually due to their proximity. One possibility that the effects of the former two will be muted. The other is that they will predominantly affect the currencies related to their regions (EURUSD, in particular). The third is that the markets will swing wildly about, either reversing swiftly in a series of spikes, or continuing a sudden high volatility run as each event magnifies the prior one.
Regardless of what happens, it is not good news for technical traders. It will mean that stop losses are more likely to be hit, and probability reduced. It will also mean that the safer trades are most likely to be on the lower timeframes, where they can be protected quickly. A reasonable response might be to avoid trading on that day completely. However, in my role as market analyst, that option is not an option.
So, what is the purpose of this post? I have not done one like this before, but due to the concatenation of circumstances that are rising to meet the markets this week, I thought it was worth highlighting. Forewarned is forearmed. I shall trust to tried and true methodology and systematic, as always, and whatever results, results. I certainly do not envy discretionary traders this week!