The volatility that has been triggered by the US presidential election has been great for some and nightmare for others. I wanted to share a couple of before and after charts to make a point that being patient always pays. Just because it is the presidential election, you don’t need to jump into trades that you don’t feel comfortable with. Waiting for the dust to settle and the right moment is always more important.
Lighten up
Going into the election, I advised the private group to lighten up and didn’t provide much in the way of fresh trade signals:
USD/JPY short
After missing out on the big moves in equity markets and the sell-off in the dollar, the USD/JPY had not made its move and I thought this was the perfect time to jump on board, now that the market has had a good idea who was going to win the election.
This is the trade idea, as well as the before and after charts:
The idea behind the trade is mentioned above, but from a technical view point it was this:
…this trade is based on the facts that the trend for USD/JPY has been bearish and given the numerous false breakout attempts which have trapped the bulls. If we are reading price action correctly, then a drop below support in the 104.20 region should be expected (below which trapped bulls’ stops would be resting). So our min objective is the liquidity below that level, using 127.2% Fib extension as an objective target.
The invalidation is based on the hourly chart – basically above the recent intraday highs before the latest drop. It is also above the recent resistance level of 104.95ish which you can see on this daily chart.
Finally the entry is based on the re-test of broken support (the low from Tuesday and H1 range)
Gold long
The only other trade that I issued a day after the election was gold. In fact, we wanted to buy gold before the election based on the below analysis, but we never got round to it:
We missed the initial entry but to be honest the intraday volatility on the election night would have probably stopped us out anyway if we had adjusted our stop loss to around breakeven.
A few days later, gold had tipped its hand: we had our first higher high:
(Sauvity? No idea what the iPhone autocorrect was thinking. I meant August)
This was the exact entry details for the long gold idea:
The idea was literally very simple: buy at market because trapped sellers were in real trouble. Gold had many opportunities to break lower but each time it looked like it was about to tank, it held up. So now that we had a higher high, it meant the sellers’ stops were about to trip, causing a sharp short squeeze rally – which is exactly what happened next:
So, I hope you have learned a thing or two from the above analysis, and how I look for trade setups. But more to the point, I wanted to highlight the need to remain patient and not to get carried away by risk events like the elections. The market will always give you good opportunities.
Don’t unload your gun shooting blindly. Leave some bullets for when the elephant walks past you. (I think that was a quote from a trading book I read a few years ago but can’t remember the name).