As many seasoned traders know, events in the financial markets are correlated and blend together.
Some traders choose only to trade certain markets (like Forex) and miss opportunities in other asset classes. This could mean that as a trader or investor, you are missing out on valuable profits or opportunities elsewhere.
Oil Takes a Hit
A fine example of this is the recent drop in oil prices. This was a consequence of the COVID-19 pandemic. So not only did the stock markets take a massive decline, other assets suffered the knock-on effects.
Taking this one step further, oil company stocks took a beating twice over. First, they had been falling since December 31st 2019 due to the initial Coronavirus situation in China and then the oil price crash had them falling further.
In addition to this, there was another casualty from the fallout and that was the oil-based commodities currencies. The currencies from Norway (NOK), Russia (RUB) and Canada (CAD) have under performed recently and this is because they are oil-rich nations, these currencies are often correlated to the oil price and react quite sensitively to oil-related news.
Now, you are not expected to remember this overnight but with the correct tools, you will be able to identify opportunities and invest or trade in the right assets.
A Closer Look at Copper
At the moment many people are asking if this is the best time to buy stocks and shares. The real answer is, nobody can time this perfectly, but if you know how to read the charts and look for the correct signs it may be possible to jump in when the time is right.
Don’t forget that you can trade shares when they rise and when they fall. This means you can profit if you feel like some companies will continue to under perform.
Looking at another example now, below we have a chart of Southern Copper, a company listed in the US, and another chart below that of the copper price. It sounds obvious but the two asset classes are very much correlated; if we think there will be a rise in the copper price, we could look at buying shares in Southern Copper or a UK listed company like Kaz Minerals or BHP. There are obviously subtle differences between the companies due to performance, dividends etc., but the premise is still the same. We use the charts to identify the best entry, exit and risk parameters.
Adding to this analysis, there is also a macro element to the way we analyse charts. If the economic data starts to improve in China, it would be inevitable that the copper prices will rise too. China is the world’s largest consumer of raw materials. In fact, 51% of the total supply of base metals is consumed by the economic powerhouse. So not only can we analyse the copper price and the share charts, we can add a third dimension and increase the probability of success for the trades we take.
Southern Copper Daily chart
Copper Daily chart
How can I spot these market moves?
Some of this may sound daunting, but with the right chart signals and training it becomes second nature. The indicators we have on the chart let you know which assets are favourable and which we should stay away from. There are also other areas of trading that should not be overlooked, including money management and psychology.
Having a good robust trading strategy is one thing, but knowing how to implement it is another. At Trading College we help traders with simple systems and great knowledge to ensure we make the most of the opportunities in the financial markets. It could be Forex, commodities or shares, all of which have a knock-on effect. Just when you think one opportunity is over, another one comes along.
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Lee is qualified at The Society of Technical Analysts, having passed his MSTA and CFTe with flying colours. To see Lee and our coaches use technical analysis, you can access our Live Trading Chat Room 5 days a week. If you’re looking to step into the world of online trading, we’d like to help. We offer both courses and mentoring opportunities to help you trade with skill and confidence. Join us for our free Learn to Trade Online course to really get your foot in the door! See here for more details and to find a date near you. Registration is now open for our Pro-Trader Programme! Join now and find financial freedom.
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