Avoiding Rate Explosions By Monitoring Geo-Politics
In the end it didn’t take much. A single shot. The wrong man taking the fall.
The world as we knew it coming to an end. That’s how it went down on June 28th, 1914.
It was Archduke Franz Ferdinand of Austria. Presumptive heir to the Austro-Hungarian throne. The objective was simple enough, the breakoff and formation of Yugoslavia. The actual outcome? World War One.
Every day, shots are fired in the markets covered by your currency pair. They don’t come in the form of scheduled reports either. They’re the geo-political moves that get made after hours that turn a regular Tuesday in June into a financial bloodbath.
These events are right under your nose. Knowing what to monitor can save your account from getting slaughtered.
Rate explosions in the making that are missed by most
It was the great Prussian statesman Otto von Bismarck – that’s right, the guy who had the battleship named after him who predicted the outbreak of World War I. He said that ‘one day, the great European War will come out of some… foolish thing in the Balkans.’ For as remote as the Balkans may have seemed, he was right on the money.
When looking at their currency pair, most retail Forex traders overlook other events that have the ability to affect their rate. And we’re not just talking about a twitch in one direction or the other – we’re talking about a skyrocket or a crater that takes days if not months to recover from.
These are the geo-political events and decisions that happen in another country, in a different time zone, usually at an unpredictable time. If you’re not watching, they’ll catch you off-guard. If you’re keeping an eye on the right news items, you can protect your positions and account from these events – even benefit from them.
The key is understanding the relationships between markets and pairs.
Signs that your currency pair is headed for serious action
It wasn’t the shooting itself, which was horrific in nature – it was the events that led up to the shooting. In this case, Bosnia and Herzegovina, former Ottoman territories in the Balkan region were annexed by Austria in 1908. The Serbs wanted independence and were plotting to make a statement.
Right now, across the world, statements are being made that have far-ranging effects on currency rates. Starting with Brexit in the summer of 2016, a populist movement began which has spread across continents and rattled markets. Setting aside politics and simply looking at the impact on currency rates – this has put macro (month over month) moves in motion. These larger trends are fueled by smaller headlines that we see in the news every day.
If you’re trading anything tied to the Euro, then you’ve seen massive fluctuation tied to the elections taking place in Europe right now. You’ve also ridden the roller coaster tied to Britain’s exit from the European Union. These Otto von Bismarck-movements have driven pip swings in the hundreds.
Sitting in front of your trading platform right now, if you don’t believe that a primary election on the other side of the world can cost you hundreds, if not thousands, of dollars – then you’re likely mistaken.
What to monitor outside your chart
The assassination set off a rapid chain of events across Europe instantly. The Serbian government was blamed and the event was used as justification to settle the issue of independence once and for all. Germany stepped into the fray alongside Austria and the rest is history.
You don’t need a degree in political science to monitor unfolding events that have the chance to impact your currency pair(s). Instability and uncertainty is bad – regardless of the market you’re trading. Unexpected expenses, debt and movements are also bad. All of which are taking place in one form or another around the world.
Keep an eye on scheduled news events. Watch the results of the elections and pay attention to the macro and intermediate trends taking place. The market has a habit of tipping its hand during these moments and you can trade with these trends as long as you know what to look for.
Looking at the general movement of the Euro, you can see that the uncertainty surrounding elections, coupled with the Brexit movement, is hammering the currency.
Watch the signs that point towards safety first, then consistency
It wasn’t a shot out of the blue that caught Ferdinand. Bombs had actually been tossed at him earlier in the day. In fact, his motorcade passed by one assassin who failed to act, a second who bounced his bomb off the back of the Archduke’s car. He actually went to a reception at the town hall right after that.
Don’t wait for bombs to be thrown before protecting your account from major geo-political news. When things get overheated, remove the long-term swing strategies until the picture clears. Use ATM as a means to keep your losses minimized, and protected from catastrophic events.
Watch the news and pay attention during election cycles. Ripple effects with prior elections can be felt in future elections, especially when movements are underway. These are the moments that defy price logic and send currency pairs to new levels.
Protect your account from catastrophe and trade your way to consistency, regardless of which direction history takes your rate.