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The following guest post is courtesy of Jens Chrzanowski, Regional German Director at FCA regulated broker Admiral Markets UK.
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“Sell in May and go away”. This famous trading wisdom isn’t concerned with where you’re going on holiday or if you’ve packed your sun cream. Its purpose is rather to highlight the historical change in direction of markets at this time of the year. After recent all-time-high records in many markets, such as the US Dow index or the German Dax, now seems like a good time to talk about what might be coming next month and beyond…
Many of us still focus solely on the Forex market and, as we all know, the direction of trends are not so important here, mainly because you can have both ‘long’ and ‘short’ engagements. But you should always remember that for the majority of all trading affined people – perhaps your potential clients even – single shares or indices are often seen as the ‘classical’ market.
Because indices are a kind of umbrella term for different types of single stocks, they tend to show a general trend and direction, so even newbies can easily understand how an index operates. Traders aren’t required to spend too long educating themselves or demo testing to get the hang of an index. If you trade what you already know, what you’re already familiar with, it’s much easier to get started.
The index markets saw a big jump following the first round of the French presidential election last weekend, even achieving new highs. These results appear to be driven by the election and the greater probability that the pro-EU candidate, Emmanuel Macron, will win the second and final round.
But it’s not all good news for the markets right now…
There are still lots of people waiting to see what Trump is going to do, following all of his exaggerated campaign rhetoric. If nothing big comes of his ‘promises’, the US markets could lead the way down, after this record-breaking period.
A new UK parliamentary election is coming this summer, followed later this year by a German parliamentary election. After many months of rising markets, the trend could soon be halted or even reversed. You’ve probably heard people saying that the markets are overheated lately, well a downtrend could be the ultimate result.
Predicting the exact timing of a market movement is every trader’s dream! Of course, making a precise prediction is impossible. But the age-old adage, “Sell in May and go away”, does actually have a little history to back up its advice. Quite often, at the start of a new year, many people start to invest and actively trade the markets. Then, around May, the behaviour of these investors begins to change. Markets relax a little and begin to ‘cool down’, then the summer season begins smoothly. We’ve seen summer rallies in the past, for sure, but the usual time for indices to take a breather is during the summertime, certainly if the time preceding it was especially ‘hot’.
What this summer will bring us remains to be seen. But with France, Trump, the UK, Germany on the horizon, only one thing is really certain… Anything can happen! After the rain, comes the sunshine. And after sunshine there will be rain. Another famous slogan! So, after the recent new all-time-highs, it’s always a good idea to check all directions! Both long and short.
See you next week!
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Trading on margin carries a high level of risk, and this article should not be seen as advice or solicitation to buy or sell. It’s written for informational purposes only.