With the holiday season lingering on and a new year on the cusp of arrival, traders may glance at the calendar and notice there is not much economic news to anticipate on Friday to cap off a light week. In situations like these where there can be lulls in bullish and bearish momentum due to a lack of fundamental catalysts, it can be helpful to remember that abstaining from trading is often its own discipline. With this in mind, let’s consider three ways traders can be productive during bouts of time where financial markets may not yield many trade setups. After all, the art of not trading is hard to navigate, but is essential for remaining profitable.
1) Rest
This may seem obvious or cliché at face value; however, guaranteeing meaningful rest for yourself is of the utmost importance when it comes to excelling in any skill. Just as athletes and manual laborers need rest days so that their muscles can adequately repair, time off from purely mental activities like trading is crucial for avoiding burnout and preventing recklessness. Besides simply making an effort to spend time away from the trading environment, ensuring a certain quality of rest can be quite helpful as well. Whether that means indulging in some extra sleep, spending time with old friends, exercising at the gym, or making time for an often-neglected hobby, good rest takes many forms for everyone. Whatever that happens to be for you, fitting restfulness into your lifestyle truly is an aspect of healthy trading, not a departure from it.
2) Backtest
Because trading is a game of risk management and probabilities, setting aside time for pouring over historical data can be of great benefit when it comes to exploring a strategy. Whether you are considering implementing a brand-new approach or polishing a formula you judge to be tried-and-true, subjecting any strategy to backtesting is always time well spent. For those interested in learning more about how to backtest, feel free to watch this video and much more from A1 Trading’s YouTube channel, and explore a selection of Metatrader Trading Software offered here.
3) Read
It often appears to be the case that many retail traders fall into the trap of over-relying on technical analysis over fundamental analysis. While reading charts and utilizing technical indicators can be incredibly helpful, it is important to remember that currencies, equities, and commodities are real things with actual value, and that their worth is not reducible to patterns on a screen. Investing your time in conducting fundamental analysis, such as reading up on the economic performance of the host country of a currency you trade or keeping up with news about the geopolitical tensions influencing a commodity’s availability, can be illuminating. By making an effort to understand the nuances of a particular currency pair or other asset, you may find that your biases as a trader grow more nuanced as well. For those interested in using a market scanner that offers supplemental fundamental analysis, the EdgeFinder is fantastic.
On Wednesday, October 5th, the multinational group known as OPEC+, which consists of the OPEC member countries plus a selection of non-member allies (including Russia), made a shocking and controversial move. They decided to collectively scale back their oil production, which currently amounts to approximately 40% of the world’s supply, by 2 million barrels per day, or 2% of global output. This policy agenda comes on the heels of several months of declining oil prices, with brent crude oil falling below $95 a barrel from this recent summer’s highs around $125 a barrel. As the Economist describes, this organization operates in a manner comparable to an international central bank, with the goal of keeping oil and gas prices high and stable. These production cuts will surely be felt by consumers and investors around the world, which is why we ought to discuss how to trade the OPEC news.
What Exactly is OPEC?
The Organization of the Petroleum Exporting Countries, or OPEC, is an intergovernmental organization that plays a weighty role in influencing oil and gas prices on an international scale. Consisting of thirteen member countries which meet regularly, not only do they contribute well over a third of the world's oil supply, but they also own over 75% of the world's oil reserves. OPEC+ also includes ten additional countries which participate in OPEC’s plans, and whose sizeable global authority grows exponentially larger amid an energy crisis, particularly one primarily created by Russia, an OPEC+ participant.
Why Are These Output Cuts Significant?
These cuts, which could likely become more severe than expected given OPEC+’s reputation for failing to meet production goals, guarantee a smaller energy supply available within the global markets short-term, which necessarily creates higher oil and gas prices. This reduced supply and higher prices could not come at a worse time for many internationally speaking: European countries are already grappling with the consequences of underdeveloped energy sectors due to years of reliance on Russian exports, and many lower income countries are struggling under the burden of painful US Dollar-denominated debts and energy prices. This is a devastating economic blow to billions of people around the world, and it will reflect as such across financial markets.
Could Rising Oil Prices Be Mitigated?
Unfortunately, there does not appear to be much that can be done in the short-term to resolve this situation, at least on a multinational level. US President Biden announced a plan to release 10 million more barrels of oil from the US Strategic Petroleum Reserve in the month of November, in addition to the 180 million barrels already released since Spring of this year. While this may help cushion some of the initial blow for consumers, it is purely palliative, and unsustainable given the reserve’s limitations and the potential longevity of this energy crisis. Norway, now the EU’s largest supplier of gas, announced plans to use ‘joint tools’ to boost exports for Europe amid crisis, but precise details about this arrangement are currently few. It could take a grueling amount of time for the world’s countries to expand energy grids and develop diplomacy strategies to mitigate damage.
How Have Forex Fundamentals Changed?
Due to oil’s now artificially exacerbated scarcity, and its aforementioned effects on various economies, this news has certainly influenced market fundamentals, including within the forex market. For commodity traders, fundamentals appear to be quite bullish for US Oil into the near future and may continue to be so until global oil output returns to previous levels. For those trading currency pairs, this news is likely bullish for the Canadian Dollar, a ‘commodity currency’ since oil and gas production and exports are central for Canada’s economy. By contrast, this news offers further bearish potential for the Euro, since this current energy crisis has been catalytic in sending EUR to historic lows against other currencies, especially USD.
Three Trading Possibilities
The EdgeFinder, A1 Trading’s market scanner tool which offers traders holistic supplemental analysis for a variety of pairs and securities, corroborates the fundamentals mentioned above. The following three possibilities are viewed favorably for traders, and are listed with their respective ratings, biases/signals, and a chart which lists the specific factors the EdgeFinder takes into account.
A) USO - Earns a 7, or ‘Strong Buy’ Signal
B) EUR/CAD - Earns a -2, or ‘Neutral’ Signal (personal sell bias)
C) EUR/USD - Earns a -7, or ‘Strong Sell’ Signal
