Forex

Assessing The Aftermath of Brexit

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Sam Evans
Instructor

Well it happened after all: Great Britain left the European Union and from this day forward June 24th will be known as Brexit Day, the day when the British population voted to go it alone and forge their very own “Independence Day” of sorts – I wonder where they got that idea from? All jokes aside, this is without doubt one of the single biggest social/political events we have seen in the modern era. So as promised, here I am to follow up on my piece before the Brexit vote took place, and what a ride it has been indeed!

The first thing that strikes me about the whole thing, which is especially ironic, is the amount of confusion there was before the vote itself over how it would impact the UK and Europe overall. Each side, whether in favor or leaving or staying, had its own opinion of what would happen, yet in the grand scheme of things nobody really had a clear idea of the outcomes either way. Now that the vote is counted and the result is in, there seems to be just as much confusion as before it all happened. As of right now, it is way too early to know exactly what the long-term effects of the Brexit will be so any opinion we hear is nothing more than that, opinion.

Free Trading WorkshopThe facts and outcomes will all come in time. It should be noted after all, that the UK will remain a member of the EU for at least another 2 years as the government negotiates the terms of the exit itself. A lot could happen in the political realm during this space of time. After the resignation of former Prime Minster David Cameron (a huge campaigner for the UK staying in the EU), the new PM Theresa May has the tough job of leading the country through the political storm to come as Great Britain walks tall into the unknown territory of European Continental solitude.Tweet: Great Britain walks tall into the territory of European Continental solitude http://ctt.ec/zOow3+ Will new trade deals open up and old ties come to an end? Will the nation’s buoyant housing market suffer a major decline in months to come and, of course, what is the fate of the Great British Pound in all of this? As I would suspect that readers of this article are no doubt most interested in that topic above the others, so let us look at what may be to come for the GBP and how to negotiate these oh so choppy waters of political and economic uncertainty we find ourselves in today.

As regular readers of my work will already know, when it comes to trading and investing I do not follow news and fundamentals in my decision-making process. To me and my colleagues at Online Trading Academy, we know that the only groups who consistently make money in the markets are the banks and major institutions. They have the tools, the resources and of course, they have the deepest pockets. When they attempt to buy and sell anything from stocks to currency, it is their unfilled orders which create huge imbalances in price, tilting the supply and demand relationship and resulting in major moves to both the up and the downside. If we learn to understand and recognize what these imbalances look like on a price chart, then there is no reason why we can’t buy and sell in the same areas as they do too. To me, this is the only way to approach the financial markets because we focus on the only thing that matters, and that is price itself.

Attempting to make sense of news is always going to get you late to the game, and on the night of the Brexit this was no different at all. Early reports as the votes came in suggested that the UK was going to vote to stay part of the EU and this apparently caused a big rally in the GBPUSD to around 1.5014. However, as quickly as it shot up it then began its almighty decent straight down, with the pair collapsing down over the next few days to as low as 1.2700. Here is how it looked:

A look at the European market after Brexit

How was someone looking at the news in real time supposed to capitalize on a move like that? How many people do we think were suckered into buying as the GBPUSD pushed just a few pips above 1.5000, only to see it then take a sharp reversal? Well, one of the major advantages of analyzing the markets through pure Supply and Demand is that you cut out the noise of everything else. Believe it or not, I was teaching a live trading and analysis XLT session on June 19th, the Sunday before the vote and look what level was drawn in well before the vote:

Online Trading Academy's supply and demand strategy still works, even amidst the uncertainty of Brexit.

Notice in the top left chart you will see that we highlighted the Supply level around 1.5000 ahead of the vote. Of course we did not know what way the vote was going to go 4 days ahead of time but did it matter? If the chart shows us where the banks were selling GBP then that is good enough for a low risk and high reward trading opportunity. Now that the move to the downside has happened, you will be reading in the press that many people are predicting a further 7-10% fall in the currency pair and these reports were being offered to the public when the market was trading below 1.2900. Right now, at the time of writing this article, the GBPUSD was trading around 1.3400 after hitting the below level of demand:

Trading the GBPUSD after Brexit

Judging by the above chart I see no reason why the cable shouldn’t rally to around 1.4000, but if I am wrong then we always have our stop loss order to get us out for a small loss. You see, if you spend all of your time trying to make sense of the constant news reports and opinions of the experts, you will very rarely find yourself on the right side of the market. The media will always give us a reason why the market moved in a certain direction but it never tells us what direction it will move in next. Only our charts give us the vital clues for that. The next few years are set to be a wild ride for the GBP but only if you pay attention to the wrong information. Like everyone else, I really don’t know where the price of the GBPUSD will be in the next few years but I do know that I’ll be following the banks every step of the way.

Safe trading and be well,

Sam Evans – sevans@tradingacademy.com

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.