In this video, we’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving yet another Brexit development this week.
We’re going to look at a move on the GBPCAD. We’ll break this down and see how you could have predicted and caught this move by using our market commentary.
Firstly, we need to understand the context or the baseline surrounding this pair and these currencies before this move took place. In the terminal, on 30 October at 9:33 AM UK time we posted a current sentiment driver report for the panel.
It tells you what kind of breaking news or what kind of information the pound is moving on, and then what kind of breaking news is going to cause the best, most predictable moves. The current baseline was all about the election and basically the pound was going to be moving on speculation over who is going to win the election, because it’s such an important election.
So, we’ve got the baseline. Now the next thing we need is we need to identify the type of breaking news that would generate the biggest market moving shifts. Based on this baseline, what would cause a shift?
Well on the same report it said, “Increasing support for the Conservative party will be pound positive and increasing support for the Labour Party will be pound negative.”
Now Conservative Party is Boris Johnson’s party. If it’s more likely Boris Johnson was going to win, the pound will rally, and you want to be buying in those moves because they’re going to be some nice predictable shifts in terms of pound buying.
So, once you’ve got the context, once you’ve identified the shift, all we need now was the trigger. In other words, this sentiment shift that we’ve identified ahead of time to actually take place.
So, if we go a little bit later in the day on October 30th, at 18:20 we had a headline drop into the sentiment stream. “The Brexit party’s considering pulling out of hundreds of seats in what would be a game changer for Boris Johnson’s hopes of winning a general election.”
This is the update we were waiting for because this headline suddenly makes it much more likely that Boris Johnson, the Conservative Party, are going to win that election. Which of course as we know from our current sentiment report is the exact type of breaking news we want to be waiting for because that’s what’s going to be moving the pound.
And that particular type of news is going to be moving the pound higher. So, if we have a look at the GBPCAD chart we can see that we had a couple of hours to get in on this move and buy it. We knew the pound was only going to go in one direction for the next few hours.
Now just before I go into that, I just want to quickly explain why we were buying the pound against the Canadian dollar. That day we just had the Bank of Canada rate decision, and they took a dovish tilt in their rhetoric, which the market wasn’t expecting.
This caused the CAD to sell off and be very weak. One of the first things you’ll learn when trading with fundamentals is to always be pairing the absolute strongest versus the absolute weakest currencies at any given time.
So, if we were super bullish on the pound because of this, we knew that we wanted to be trading against the weakest currency, which on that day happened to be the Canadian dollar.
So, we saw from the trade example video above that the market took off and the price actually rallied over a hundred pips in just a few hours, even before the next session open. So plenty of pips to be made.
If you’re interested in learning more about how our market commentary can help you interpret news and fundamental analysis into profitable trades like this, click the product tab above and check out Financial Source. Please post your questions or comments below this video because we do read them all and we base our future educational videos on the kind of questions that you ask.