Perspective Image 13-Jun-16

Price Action Trading Report – Perspective 13-Jul-16

Hello there PAST Traders!

I got a bit of a wake-up call over the weekend.

I had two separate conversations, both with close family members, that really gave me a shake.

I got a dose of some much-needed perspective.

But before I get into all that, I want to update you a little on the markets as I see them right now.

NZDUSD

Trader Image 13-Jun-16

The current chart of NZDUSD is a perfect demonstration of why preceding trends are so important when trading candlestick reversal signals.

(See Chapter 4 of the free PAST Strategy eBook for more information on preceding trends)

We said repeatedly in our video analysis that the preceding trend for this trading setup wasn’t great. But given the dearth of movement out there in the market right now, it was probably the best on offer.

So while it’s disappointing that the market has ignored the long wick reversal candle and spent two weeks climbing, it’s not exactly unexpected.

Having confined myself to only trading trendline breaks on the lower timeframes though, I’ve managed to keep losses to a minimum, and I have to be satisfied with that.

Current State of Play In The Markets

The markets are in a bit of a funny place right now.

US Stocks are at all time highs, while bond yields are at all time lows. Strange.

Forex pairs are, in many instances, still firmly range-bound.

It seems like the erratic market both pre and post the EU/UK referendum in June has been immediately replaced by the slow grind of the summer trading doldrums. Both trading environments are hostile to my trading strategy, which relies on significant market swings on the higher timeframes.

Now, don’t get me wrong, I’m confident of getting some big trading opportunities between now and the end of the year.

But just right now, well, things are quiet.

Anyway…

So, as I was saying, I had two conversations with family members last weekend, both of whom are involved in business.

House Building

One is involved in the house building business in the UK. He specialises in converting old buildings in city centres into new houses or apartments. It’s been a very successful strategy over the last few years.

He told me that, in the run-up to the recent referendum, interest from buyers was steady. His show homes were getting plenty of visits. And he was sending out a steady stream of glossy brochures to potential customers.

But…no one was committing to actually completing any purchases. They were all saying:

 “yes, definitely interested, but I’m just going to wait until after this referendum…

And as we all know, in that referendum, the UK voted to leave the EU.

Can you guess how many of those potential customers came back to actually buy?

None.

There hasn’t been one sale since the referendum, right across his business.

Put that on top of the news like this, well, you get the picture.

The memories of 2008, when his last business fell off a cliff practically overnight, are still fresh in his mind.

Agriculture

The second family member I was speaking to is in the agriculture business. He sells food products for farm livestock.

It’s a solid business that has provided him with a good income for over 20 years.

So, what could go wrong with that sort of business?

Animals still need to eat, right?

Well, as some of you might know, agriculture is always a tough business to be in from a cashflow point of view.

Farmers are notorious for paying late, so it’s always a fine balancing act.

Go too heavy on them for payment and you’ll not sell anything. Go too weak on them for payment and you’ll never get paid at all.

But another problem has presented itself since 23rd June 2016.

He buys most of his food products on mainland Europe, in €EUR, and sells most of them in the UK.

In £GBP.

So his cost of goods has stayed the same, while his revenue has plummeted.

Not good.

That would be bad enough by itself, but another factor has been added into the mix too. UK farmers are worried now about losing their EU farm subsidies, which for many of them represent the bulk of their annual income.

So if they were difficult to get money out of before the referendum, they are even more difficult to get money out of now.

His accountant told him last week that he needs to get some of the hundreds of thousands of £GBP in unpaid bills collected pronto, or he will run into significant cashflow problems in a matter of weeks. 

Why Am I Telling You All This?

Two reasons.

The first one is to remind you (and myself too) that there are difficult periods in every business.

Now, I’ve no doubt that some of you will think that trading for some reason is somehow immune to events like those that have affected members of my family.

But if you think that, you’re wrong.

There is no-one, nobody, that has gone through a career in trading or business without going through a period of difficulty or drawdown. Or at the very least, a quiet period.

Yes, we’re lucky that markets present opportunity whether they are going up or down.

But sometimes our trading strategy just does not suit the current market conditions. And if that is the case, we’ll suffer for a while. There’s no escaping it.

My family members are smart, resilient people. They’ll navigate their way through these challenges and come out the other side, I’ve no doubt about that.

But it will take some time, and they’ll have to hunker down, control costs, and try to ride out the rough patch as best as they can.

And likewise, If we’re confronted with a rough patch in our own trading, we need to do the exact same.

The second thing is to remind ourselves how lucky we are to be traders.

Trading truly is one of the best businesses in the world.

We don’t have to hope that people will start to buy houses again, or worry about how to get farmers to pay their bills.

The market is a steady stream of opportunity. We can control our risk right down to the penny. And if the worst comes to the worst, we can just stand to one side and wait until market conditions improve.

My family members don’t really have that option. They can’t just walk away for a while, and see what things are like in a month or two. Staff still have to get their wages, rent still has to be paid.  Of course you can do what you can to cut costs, but there are big bills that will land on the doormat no matter whether they have made money that month or not.

Put it this way: if you think you have it hard managing your risk in your own trading account, you should try managing your risk when you have 20 employees and a load of customers who can’t pay you!

So maybe instead of moaning about this quiet market, I should be glad that, even though things aren’t exactly exciting right now, they could be a lot worse. And I’m confident that better days are just around the corner.

Chat to you again soon.

 

Nigel

PS: Two currency pairs that have been on my watch-list for many months now are beginning to show real signs of life this week. Keep an eye out for a video report this weekend when I’ll go through both of them in detail. See you then!

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DISCLAIMER & COPYRIGHT

This update is based on my analysis on my charting package. It may differ to yours as it can be affected by time, market movements, charting packages and broker prices. I accept no liability for loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on any information in this report or analysis.