We’ve had a very interesting unfolding of events that happened in the past few days. Here is my Dec 6, 2017 – Forex analysis of the USDCAD currency pair.
News moves markets
Now isn’t that obvious. Last Friday, Dec 1st, a news broke out in the United States and made headlines making a crushing blow to the US dollar.
Michael Flynn, the former US national security adviser, has pleaded guilty to making false statements in relation to his conversation with the Russian ambassador before US President Donald Trump took office. You can read more of it here from Aljazeera.
Now I won’t go into the details of that news but I’m only pointing out the news because of what transpired in the markets after the news broke out.
Here are my observations:
- BIG red candle drop occurred when the news broke out
- Price was back to my initial entry point A
- Couple of succeeding days followed through a little bit with the downward pressure
- Notice that on Dec 5 (first green candle after the drop) price went lower than previous lows
- Then today finally market traced back up
What’s my take on it
In any markets whether in stocks, options and Forex, news always move the markets.
With stocks company news, such as quarterly earnings reports, splits and any management changes usually brings about huge move in that stocks prices regardless whether it’s up or down. It all depends on the sentiment of the market players.
With Forex, it’s quite different where it’s not only a single company but rather the economic condition and the political powers that moves the market.
Now with what happened last Friday, this doesn’t necessarily mean that the uptrend is done, in my opinion. As we can see the price just went back to the same area of its previous lows, although granted a little bit lower.
I’ll go as far as saying that the uptrend might only be taking a breather and moving sideways. However, I am still cautious in all of this.
Was there an opportunity
Now I did see an opportunity. Often times, when news breaks out and the market makes a big move, the emotions of the players of the markets, especially retail traders, gets hyped up.
Emotions of fear
So if there was a sell off due to a negative news, then fear becomes too great that fuels the downward pressure even more.
Emotions of greed
And if there was a positive news and the price action breaks out and climbs higher, the emotion of greed takes over and it drives the prices higher.
These are the two emotions that drives the price action and of course being correlated with the news event.
It is, however, a common theme that after the news breaks out, the weather gets calmer the next succeeding days. Although a word of caution that the sell off or breakout could even last in a matter of days as well.
Nonetheless, as I looked at the bigger picture, that we’re essentially only back to my entry point back in November, I opted to add to my position as shown in the chart (Point B).
My plan was basically to do a counter trend trade and take the opposite position of the prevailing emotion of the majority at the time when people are driven by fear due to the negative news.
Profitable in 3 days
True enough three days later, which is today, the prices recovered back up about halfway of the drop and it gave me a decent profit.
As I said, I’m still remaining cautious as things unfold, which is why I opted to close my additional position that I took last Friday, Dec 1st. I took advantage of the news storm and the calmness thereafter and was able to make a decent profit out of the craziness of what happened.
What about my initial position
My initial position is still in play. It is still in the green with unrealized gain as of today’s market action. I am allowing things to play out and see whether the uptrend is still going to continue after this period of consolidation or sideways move.
So there you have it folks. My take on what transpired in the markets and how I played the unfolding of the news.
Let me know your feedback and questions below in the comment section.