Profitably Trading Strategies
Shortages of many important products, including medical supplies, nationwide lockdowns, and massive disruptions of supply chain operations have resulted in traders, both experienced and new, trying to figure out how they can best adjust their trading tactics during the pandemic.
Trader must determining which news should be believed and acted upon. Which markets should be focused on, and making accurate forecasts for opening positions have all become very challenging during the crisis. This whole scenario has further been exacerbated by the possibility of a “second wave” of the virus as many countries end their lockdown in an effort to get economic activity back to normal.
Although the seriousness of the Covid-19 crises and its consequences can’t be downplayed or underestimated, traders need to find ways to turn this hectic situation into one that is profitable for them if they hope to reach their financial goals and maintain their livelihoods.
To assist with this objective, trader have put together some strategies that will help you identify the markets that are affected as the pandemic develops and can be used to trade profitably.
Filter The News
Not all news about Covid-19 and the coronavirus pandemic and issues related to it is equal. The term “fake news” has by now been around long enough for most of us to have realized that not all of the massive amount of information we get daily is accurate. It is however also very important to understand that when it comes to trading during the crises, some news is much more relevant than others.
Although trader may personally be interested in knowing what the status of the spread of the coronavirus is in trader own locale. The truth of the matter is that markets are not interested in most geographical locations. The two areas that are most important to markets are the U.S. and China, with the European Union, Japan, and South Korea trailing quite a distance behind them.
There are however various sources that have a huge impact on markets when they release information about the spreading of the Covid-19 virus, its mortality rates, optimism and concerns:
- The CDC (Center for Disease Control) in the U.S. — although this organization is riddled with controversy, the economic policy of the U.S. regarding the pandemic is directly linked to the figures and information produced by it.
- The WHO (World Health Organization) — despite the sometimes questionable actions by this organization before and during the pandemic, markets listen when they make an announcement.
- Don’t pay any attention to Western media reporting on the number of virus infections in China. Whether the reports are true or not, markets simply don’t care.
- Official announcements from China’s government on negative pandemic news in the country. It is worth taking note of this news if it is bad enough for the Chinese government to actually admit it.
- Any official agreement announced by OPEC+ on production limit agreements amongst its members.
Watch Economic Engines
The general economic well-being is supported by so-called economic engines. Experienced traders in the know keep track of their Economic Calendars around the clock, regardless of the Covid-19 crises. During the pandemic and as the world slowly tries to move back towards normality, it is more important than ever to keep track of this short list of indicators, as this will give you the edge while trading.
1. American employment data. The biggest hit to the global economy is the fact that millions of American consumers don’t have jobs. When they spend less, the world produces less.
Despite the U.S. government’s efforts to render assistance, Americans are making a lot less money. When the employment figures change, it indicates opportunities to trade.
2. Chinese manufacturing data. A big chunk of what the U.S. and the rest of the world buys is manufactured in China. Although China uses resources for their manufacturing, they won’t make anything if the U.S. does not buy.
Although this relationship is symbiotic, one or the other often increases first. In the current situation, it is very likely that the Chinese will restart their economic engine before the U.S.
3. Oil storage levels. Oil is a key ingredient in the global economy. The U.S. reports on their crude oil inventories every week. This is very important due to the U.S. being the biggest oil consumer globally, while China is second.
If inventories increase or stay the same, it is an indication that the U.S. consumer and industrial machines are not improving and this translates to less sales of everything, not just oil.
Overall Sentiment is Reflected by Markets
Although experienced investors are well aware of the following information, it is worthwhile mentioning it again and it will hopefully be useful for anybody trying to evaluate how to trade in current market conditions.
Gold, the S&P 500 and Brent Oil. These 3 assets provide the most insight into the effect of global events in the markets and how the big players (mega funds, finance houses, etc.) view current conditions.
When there is any economic catastrophe and countries experience things like hyper-inflation or war, major investors globally buy gold. This is due to the fact that gold is viewed as a store of value. Throughout hundreds of years and various government experiments and economic systems, it has kept its value.
If the gold price increases and the super-wealthy are buying it, that is never a good sign for things to come in the markets. To see what we’re talking about, simply look at the gold chart from Oct 2019 up to now.
The S&P 500 index of stocks in the U.S. provides traders with a glimpse of the overall health of the largest corporations globally. Taking a look at the S&P will give you a very good idea of how investors see the health of the world’s economy.
The S&P represents a huge range of sectors and industries. This allows traders to get a solid grasp of how things are going and this in turn makes for informed trading decisions. If the big investors see something happening that is related to Covid-19, they will react and this shows up in the S&P 500.
As stated previously, oil is the fuel of economic and commercial activity. Oil is most used asset. Although there are others such as Urals grade (Russia) and West Texas Intermediate (U.S.), Brent’s global influence on markets is by far the biggest.
Brent’s price increases when the global demand for oil is increasing and this in turn means economic activity is increasing. This will affect just about every company’s profits and sales. If this sounds powerful and huge, it’s because it is. That is the main reason why Middle Eastern wars are a very big deal to everyone.
Trade with Confidence while Moving Forward
To be able to make profit with the current market conditions, traders have to keep monitoring the latest news from the sources mentioned above. Keep track of the economic engines mentioned, and have a good idea how the “big” money plays as they will already know what’s happening with the other two factors.
Although we are sure that the economy globally will recover from the Covid-19 crises relatively fast, traders still need to be ready to profit from any declines.