How to Trade in Uncertain Markets
How to Trade in Uncertain Markets
There are easier and harder times to trade. Sometimes the outlook for an asset is so clear, so straightforward that the timing of your entry does not matter as the direction is clearly headed one way. However, there are other times when the direction of a market is genuinely uncertain. Now the job of a trader is not to make every call right, but instead to find your edge and execute it again and again. So, how can you use an edge if the markets are uncertain? This is one approach to take.
Look for the short-term deviations
Take the current run in equity markets. It looks like a bear market rally, but there is a range of opinions out there. Some analysts see the rally as the start of a new bull run and were adding longer-term positions. Still, others sold all their equity holdings seeing another sharp correction lower to come as US data slows. So, which one is it? Of course, you can have your view, and your view may be right, but here is a good alternative to just taking a ‘guess’. Trade the short-term deviations. If equity markets are surging higher and then an inflation print shows US inflation is higher than the maximum forecast then trade the short-term correction. Higher inflation for longer will mean the Fed will need to keep hiking interest rates which should weigh on stocks.
Look for key levels
Let’s say you wanted to take a view that the latest run in US stocks was a bear market rally. Then if you do so use a major technical level to lean against. Look for an obvious place to define and limit your risk. This way you can know that if stocks push higher past your stop then at least a major level was taken out. You also avoid the scenario where you are stuck in a market going against you. See below for a couple examples of major tech levels to lean against in the S&P500 and FTSE 100.
So, there are two key ways to trade uncertain markets. Trade short-term data deviations and use major technical levels if you want to take a decisive view on medium-term direction.
HYCM clients can access the Seasonax product in order to analyse over 25,000 currency pairs, indices, commodities, as well as individual stocks. Please contact your account manager for a free trial. Certain products & services mentioned herein may or may not be available to all clients depending on which HYCM Capital Markets Group entity their trading account(s) adheres to.
About: HYCM is the global brand name of HYCM Capital Markets (UK) Limited, HYCM (Europe) Ltd, HYCM Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under HYCM Capital Markets Group, a global corporation operating in Asia, Europe, and the Middle East.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.
20220817
