Lessons from the Pros


The Referendum Question: Dealing With Forex News

As a London born Englishman and a proud member of the United Kingdom, the announcement of Scotland’s referendum got my attention from the very start. Even though I have lived most of my life in and around London, I have grown to appreciate my country more and more over the years and enjoy nothing more than regular trips to the beautiful nation of Scotland. Its landscapes are incredible, its people are welcoming and the culture is rich. In my opinion, Scotland has always been a crown jewel of the United Kingdom and to face the prospect of this fine nation no longer being a part of the UK had me a little concerned. However I am one for democracy and when Scotland was granted its referendum and the power was given to the people to decide the future of the country, the United Kingdom held its breath.

That historic date of September 18th 2014 will be remembered forever, as the day that Scotland decided it would still remain a part of the United Kingdom and will surely leave much room for further debate amongst the supporters and the non-supporters for years to come. While I will remember this whole event clearly in my mind, I will also distinctly remember the impact it had on the world of currency trading as well.

In the lead-up to the day of the referendum, all I saw on every major financial website, were stories of the impact that the national vote was going to have on the state of the Great British Pound. Brokers swamped Forex trader’s in-boxes with invitations to open accounts, encouraging them to make the most of the volatility and opportunity that this once-in-a-lifetime public vote would create. Reports flooded the Internet with predictions of the fate of the GBP should Scotland leave the United Kingdom, with predictions of crashes and even some rallies of huge proportions to come. Having been in this business for quite some time now and with a student base numbering in the literal thousands, you can only imagine how many emails and questions I received, asking for my own opinion on the fate of the Pound and the referendum on Scotland’s independence.

If you are a regular reader of my articles, you will be aware by now that I choose to follow price action as my leading indicator for making trading decisions to buy and sell. I find that attempting to decipher the fundamentals in order to make a trading decision incredibly difficult and often subject to way too much subjectivity. Price on the other hand, is objective and that is something my brain can understand. Not only do personal reasons fuel my decision to not use fundamentals in my trading decisions but also my experience with the markets has proven to me time and time again, that often what the news is telling us to do, is completely the opposite to what the chart is telling us to do. The chart is the one thing that really shows us where institutions are creating their own levels of supply and demand, therefore if we follow the institutions, we are more likely to follow the path of profitability and success.

In the vast build-up to the Scottish referendum vote, the majority opinion in my own research suggested that there was a feeling that the British Pound would suffer greatly if Scotland decided to leave the United Kingdom. In the weeks leading up to the referendum we were also seeing a dramatic drop in the GBPUSD currency pair from the lofty heights of almost 1.7200 to around 1.6200. Bearish was the tone of the moment where GBPUSD was concerned. With this in mind and news opinion at hand, I decided to focus on what the chart was telling me first and foremost and that was suggesting to me that there was a nice buying opportunity on the horizon. Over the last few months I have been using Twitter more and more as a way of communicating with my students and readers of these articles, so I decided to post my opinion which was based upon the laws of supply and demand, on 10th September, which you can see below:

Sam Evans TwitterThe decent rally which I was predicting was based on nothing more than an institutional area of Demand which I’d noticed on my price chart. This area had shown a vast imbalance between the willing buyers and willing sellers at this price level which therefore highlighted a low risk, high reward opportunity to get long on the GBPUSD, as we can see below:


Although at the time the sentiment on the Cable was exceptionally bearish and with the referendum just over a week away, it can be difficult to be almost contrarian in your analysis of a particular market, yet I have learned over time to trust the actions of the most successful banks and funds over everything else. When it comes to trading, my opinion doesn’t matter. It is the chart that truly matters. Let’s take a look at how things panned out:


From the above chart we can see that the GBPUSD made a decent rally from the pre-analyzed Demand zone, causing a distinct shift in the sentiment and tone of the opinion towards this currency pair. While it is easy to look at what the market is doing after the event, we need to be prepared for the next move before it happens. This information and insight comes from the chart once again and even with the referendum vote looming, we were now approaching a new supply zone which prompted another tweet from me and an upcoming change in directional bias:

San Evans Twitter 2

Obviously when I tweet about these levels before they happen, I really never know if I will get the desired result, yet with probability on my side and knowing the unbreakable laws of supply and demand are likely to work more often than not, I know when to predict a turn in price ahead of time, no matter what the news or general opinion may be. When Scotland voted to stay a part of the United Kingdom, people believed that this would cause a rally in the GBP as it was fundamentally good for the currency, however the supply zone in front of me suggested a different outcome altogether, as we can see below:

3gbpAs predicted, once the vital 1.650 area was hit, we saw a decent drop to 1.6250 at least, with continued weakness from the currency pair on the horizon as we speak.

Of course in these examples I have shared we can clearly see that the price action on the charts gave us a far more objective idea of market moves before they happened, as opposed to the news which is not only confusing at times but also gives us little in the way of specific entries and distinct tuning points. Yes, sometimes even the best levels fail to hold but that’s where our protective stop loss orders kick in to prevent big losses and allow us to move on to the next low risk, high reward opportunity we see. If anything, know that just because there may be news to follow, it does not mean this is what we should do. The only thing I need to follow is the price itself which will always keep me a step ahead of the game. Opinions can change but the laws of supply and demand remain the same forever.

Enjoy your week and be well,

Sam Evans


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.