It has been a very long time since we have seen financial headline dominance like we have at the moment. On every front page, business page and markets page, from news-stands to websites all over the globe, is the topic that has everyone wrapped, the U.K.’s referendum to exit the EU. I for one am looking forward to it being over! Having said that, let’s take a look at my plan for the coming few days.
As a trader I like to maintain my awareness of the major events that are happening or about to happen, and assess the risk surrounding them to structure a plan of attack to minimise the risk and maximise the returns. So what is my plan for Brexit? I have been reading myself to sleep on this event to try and find a way I can benefit from whatever happens and here is my conclusion in a practical sense for the rest of the week ahead.
The chart you see is the US 10 year note which is in a great uptrend, has pulled back into the buy zone, the moving averages are fanning and in the correct order and price has pulled back to the old resistance level that may well prove to be support. In short, this is a potentially good place to buy this market. Under normal conditions, if today’s candle were to close as a small green candle then this could be a cracking trade long for me. But it’s not and I won’t be taking this trade no matter how good this sets up.
Why? Every trader has a different aversion to risk, some traders are keen to go ‘all in’ on every trade whilst I find myself on the opposite end of the scale, falling into the category of keeping risk to the barest minimum as possible. So why is my risk aversion important? Well, on Friday evening (AEST) the result of the referendum will be made public and this news has the potential to cause massive shockwaves throughout the markets. Should this happen then the risk on the above-mentioned trade will be far greater than I am comfortable with. We could see gaps in the markets, we may not. We could see commodities soar, or tank, currencies hit the roof or hit the floor and possibly be faced with “the sky is falling down” type scenario. It’s impossible to tell which! As a result, I don’t want anything to do with this so the thought of taking a swing trade and holding through the result and into the weekend is one that I don’t wish to consider.
So what will I be doing from now into Friday night you ask? I will be trading. It will be on the lower timeframes looking for short moves to be in and out as quickly as possible. I will be keeping my risk low and I will be looking to be out of any trade that is not a long term investment by Friday afternoon at the latest.
For all that is being said about Brexit you need to come up with your own plan. I don’t know how the markets will react and the fact is, nobody knows for certain. The financial markets have never had to deal with an event like this before and neither have I.