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The Argentine Peso has lost 71% of its value against the US Dollar in the past two years. At the end of September 2019, the US Dollar / Argentine Peso (USDARS) closed at a trading price of 57.54. As we close in on the back of September 2021, the official exchange rate is now approximately 98.5 Argentine Peso per USD.

USDARS

Several factors have contributed to the Peso devaluation. Argentina's inflation rate is no doubt the primary factor. As of August 2021, consumer prices in the country have jumped 51.4% on a yearly basis. In comparison, the USD has inflated 51.6% over the past twenty years (representing a 2.11% average annual inflation rate).

Tracking The USDARS Weekly Movements

USDARS

The tight, almost indecision-less rise of the weekly candles are a suspicious feature of the USDARS chart. It suggests that maybe unnatural market forces are controlling the ARS's depreciation. It just so happens, the Central Bank of Argentina, The Banco Central de la República Argentina does manipulate the value of the ARS, directly buying and selling Peso's on the open market to help stabilise the national currency.

The Argentinian Government also has a hand in protecting the value of the ARS. For instance, it is illegal for exporters to conduct transactions in a currency other than the ARS. Similarly, reminiscent of 1970's style foreign exchange, special permission must be sought to sell pesos for foreign currency by individuals and firms in the country.

What Is The True Value Of The ARS?

To figure this out, we can consult the black market value of the Argentine Peso, the unofficial value that is beyond the control of the Banco Central de la República Argentina. As of September 2021, one USD is traded for ~190 ARS on the black market, representing a true value that is ~52% weaker than the official exchange rate. Effectively, the Argentines peso’s true market-value is half that of the official rate.

Investigating The June 2021 Anomaly In The USDARS

USDARS

A peculiar anomaly appears in the USDARS chart. It stands in stark contrast to the indecision-less candles of the many weeks before and after. A better view of this anomaly is seen in the daily charts as this anomaly occurred on one day.

On June 30, 2021, A flash crash in the USDARS saw the pair briefly trade at a low of 91.73, equalling a -4% drop from the open price of the USD. However, the pair eventually settled 0.21% higher by the end of the trading day. The Argentine Peso was only granted a short spell of good fortune.

The crash in the USDARS happened around the time of two pivotal economic events for the ARS. The first is the agreement the Argentine Government reached with the Paris Club to defer repayment of US $2 billion debt until March 2022. The deferment shored up Argentina to tackle a US $45 billion debt with a larger creditor, the IMF. The second major economic event concerning Argentina is the ending of a self-imposed full-ban on beef exports, which happens to be the country's most significant export. While a partial ban continues, the Government relaxed restrictions to China and Israel, close to the time of the crash, to maintain an amicable trade relationship with two of its largest beef buyers.

Please note, BlackBull Markets does not offer the Argentine Peso as a tradable instrument. As indicated in the article, the currency's 'official' exchange rate is controlled by the Banco Central de la República Argentina. Thus, the Argentine Peso is too high a risk of a tradable instrument. A South American currency that BlackBull Markets does offer as a tradable instrument, is the Mexican Peso.

"If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor"

Warren Buffett.

Forex trading is not rocket science.

A simple set of guidelines can empower aspiring traders to overcome the learning curve and become consistent in a relatively short time. These same guidelines have worked for generations. Back in the early 1900s, Jesse Livermore used the same guidelines to make his fortune. However, many would-be successes have failed for easily understandable reasons.

Most traders fail to respect these basic yet essential rules:

  1. Follow the trend
  2. Sit on your hands until there is a trend to follow
  3. Cut losses as soon as logically possible
  4. Let winners run as long as logically possible
  5. Know Your Indicator

In this article, we'll review the basics to convey how these guidelines keep traders out of trouble.

1. Follow The Trend

"Follow the trend. The trend is your friend"

Jesse Livermore

Most retail traders have trouble following trends. Often, when a trend is developing, retail traders fight it, attempting to pick tops and bottoms. It's a repetitive habit that a sentiment trader illustrates systematically.

Evidently, many traders have trouble identifying a trend. That's understandable, as depending on how a trader looks at their charts, multiple trends can coexist within the same currency pair simultaneously! It's rare to see currency trending in the same direction on all time frames. It does happen when momentum is strong or driven by news, but the ebb and flow of the market tends to confuse traders that use multiple time frames.

For example, a currency pair may simultaneously seem to be trending upwards on a daily time frame and trending downwards on a 1-hour time frame. The same pair may also appear to be largely range-bound on a 5-minute time frame.

When trading from the retail angle, keeping things simple is generally best. Here are three suggestions for identifying a trend:

 

2. Sit On Your Hands Until There's A Trend To Follow

"If most traders learned to sit on their hands 50 per cent of the time, they would make a lot more money"

Bill Lipschutz, Market Wizard.

The second essential guideline in trend trading is to "sit on your hands" and refrain from trading until there is a clear trend in place. Of course, there are other ways to trade that don't rely solely on trends for their edge. However, retail traders often have part-time or full-time jobs, restricting the amount of screen time they can get. Furthermore, the time constraint reduces the available time for pre-trade analysis.

The bottom line is that retail traders are better off being light on their feet. Keep the analysis method simple and keep the trigger criteria equally simple. Trend trading fits the bill because it only takes a few minutes each day to filter the quality trends in the market. It's key to avoid trading trendless charts where there's no edge.

 

3 & 4. Cut Losses as Soon as Logically Possible & Ride Winners

Have you ever held onto a losing trade, thinking that the market "had" to turn around sooner or later? Many traders have been there, but this is in direct violation of a rule we simply can't ignore: cut losses quickly.

We should always cut our losses quickly. Likewise, we should always hold onto our winning trades for as long as logically possible.

The process of monitoring your trade after the initial entry is called "trade management". Trade management is an area that is not covered in detail in classic trading books. It's all about entries and exits. But how do we formulate a plan that helps us cut losses as soon as logically possible, but not sooner? And how can we know when to hold?

The basic idea is to let the market dictate when it's OK to hold and when it's time to fold. Simple tools that can help with managing trades are:

Without a consistent structure for managing your trades, it will be a struggle to keep your emotions at bay and "trade what you see".

 

5. Know Your Indicator

"I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail"

Abraham Maslow.

Some traders rely solely on indicators such as support and resistance lines. But some traders prefer to overlay technical indicators on their chart to assist with decision-making. That's fine, but many traders fall into the trap of "covering" their charts with technical indicators without knowing:

Unfortunately, without knowing this, it's impossible to use any indicator properly. It's also hard to know when the indicator might be giving false signals. Technical indicators are just tools. Without a good understanding of what your "tool" does, you won't know when or how to use it.

Many traders attribute more importance to indicators than they deserve.

To make this point even clear, observe a "Donchian channel". A Donchian channel simply tracks the highest high and the lowest low of a lookback period. It wouldn't be any surprise that overbought/oversold readings on the stochastic would be accompanied by "touches" of the Donchian channel. Simply stated, both indicators are telling us when we're moving outside the range designated by the lookback period!

If you choose to use indicators, make sure you know them inside out. What are they helping you "see"? What is their strength, and what is their weakness?

By learning your indicators inside out, you'll gain much more insight than by simply overlaying them on the chart and "trusting them blindly".

What's Next?

In this article, we revisited five common trading mistakes and offered some easy solutions to fix them. Trading from the retail angle requires clarity of mind. It pays to keep the analysis process simple.

You can keep your trading logical and gain peace of mind when making decisions in the markets by:

While media attention has largely shifted to stories concerning record setting stock markets and volatile ‘meme stocks’ (a term now as meaningless as ‘hipster’ and ‘Karen'), the Crypto market has settled into its own subdued rhythm. 

A far less interesting rhythm in the Crypto market

The Crypto market is still thriving, but without the media attention that it enjoyed a couple of months ago. Admittedly, the price of many top digital assets practically halved in value from their peaks a couple of months ago. Although taken in the grand scheme of things, their respective present values are basically unchanged from where they were before Elon Musk lent his influence to Bitcoin and Dogecoin and kicked off the crypto bull run. 

As of July 2021, the top crypto assets have achieved a more ‘natural’ price, as evidenced by relative stability in their respective prices.

Trading the Crypto market becomes less exciting

crypto market

Stability entered the Crypto market about a month ago. Consequently, opportunities when trading digital assets has contracted slightly. Take, for example the past seven days, Bitcoin has moved less than 4.4% in price, while Litecoin has moved 5.2%. 

With this being so, the crypto space is vast, and many projects can still experience the volatility that traders are interested in taking advantage of.

Let’s explore some of the more volatile crypto assets of the past week. Coincidently, at the time of writing, more examples cropped up. Perhaps this is a sign of an uptick in volatility.

Dogecoin, down but not out

Dogecoin is still in a precarious position. The fanfare it generated earlier in the year hasn’t exactly dissipated, but its aura of excitement has definitely dimmed. Still, Dogecoins trade at US$0.20 per coin at the time of writing, which is at a price in an order of magnitude larger than where it was when, seven months ago, the calendar ticked over into 2021.

In the past seven days, Dogecoin has moved -15% in price.

Ethereum, potentially straying further from $2,000

ETHUSD

I hadn’t originally intended for this Ethereum to be included in this article, as it was moving sub-10% in the week. However, volatility has picked up recently. In the past seven days, Ethereum has moved -16.5%. Ethereum is currently trading at ~US$1,950.

Other notable movers in Crypto market in the past 7 days:

Internet Computer, down by 15.1%

Shiba Inu, down by 18.4%

Compound, down by 19.8%

SPX 1

The S&P500 (SPX) accomplished a historic milestone last week. For the first time in its 64-year history, the Index recorded seven straight record level closes. The Index closed on Friday 02/07/21 at 4352.34, up by 0.75% for the day, up by 1.59% for the week, and up by 2.02% for the seven record-setting days.

Events bookending the Index’s growth over this timeframe were Congress passing a US$1.5 trillion infrastructure spending bill and a robust Nonfarm Payroll report.

Infrastructure spending set to boost infrastructure stocks

Setting off the SPX’s record run was the announcement on 24 June that the Biden Administration had struck a deal to pass a sizable bipartisan Infrastructure bill. By the opening of the market on 25 June, The SPX was trading 0.58% higher. Naturally, the SPX is, in part, comprised of the most significant US construction, utility, and manufacturing Companies. These companies will likely benefit from the Government’s heavy (and overdue) investment in the country’s infrastructure. Companies such as Fortinet Inc (NASDAQ: FTNT) and Qualcomm Inc (NASDAQ: QCOM), who will be integral in building out the country’s digital infrastructure, were some of the big gainers over these seven days, up by 3.4% and 1.9%, respectively.

It might be best to keep a keen eye on news regarding additional government spending in this area. The Biden Administration has already indicated that they want more infrastructure spending and are aggressively pursuing this line.

Nonfarm Payroll

The Nonfarm Payroll report, released on Friday (2 July), beat expectations by 150K. In total, 850K jobs were added to the US economy, against an expectation of 690K. By the end of the Friday session, the Index was up by 32.4 points, accounting for half of the week’s gains.

SPX futures are trading slightly lower on Monday, indicating that Friday’s jubilance might be weakening before the start of the US trading week. The Futures have plenty of time to reverse as the US markets are closed on Monday due to the observance of the country’s national holiday, Independence Day.

Where can the SPX head for the remainder of 2021

YTD, the Index is up 17.6%. Quickly browsing the Index’s historical growth data, double-digit figures close to 20% are not all that uncommon. Taking the previous five years as an example, starting from 2020, the Index grew 16.3%, 28.9%, -6.2%, 19.4%, and 9.5%.

If we want to make history as a predictor of the future, we could note that the SPX has never closed lower for the year after logging double-digit growth in the first half of the year. However, this fact is unrelated to the probability that the SPX could be lower than its half-year position by the close of the year.

SPX2

At least in the short term, I would expect the jubilance in the market to continue. The Index is startlingly close to crossing the 4350.00 level. Perhaps it will achieve this feat sometime this week. Further afield, 4360.00 and 4400.00 are some barriers for the Index to travel in the immediate term.

If we want to be a little more pessimistic, we could look at some retracement points for the Index. The 50% Level appears to be an obvious point of retracement, although the resistance at this point would have to switch to support. A more appropriate level for retracement might be in the middle of the 61.8% and 100% levels. At this point, approximately 4191.00, there exists a historical story of support.

AUD1

Consider this: In the 66 weeks since the AUD reached a low of 0.5741 in March of 2020, the AUD has strengthened over 43 of these weeks. If you want to consider the weeks in isolation from one another, this translates to an approximate 2:1 win rate for the AUD.

The AUDUSD is trading at 0.7524 at the time of writing.

The majority of the weeks that AUD has weakened against the USD have occurred since February 2021. The frequency of bearish AUD weeks really began to pick up at this time.

This poses the question: has the AUD peaked in 2021? And can we expect a considerable turn to the downside during the rest of the 2021? What things might we consider when evaluating where the AUD will move in July and beyond?

AUD2

Has volatility subdued?

Volatility has definitely subdued in the pair, as the worst of the pandemic is likely behind us. For the best part of 2021, the pair has consolidated between 0.7550 and 0.7900.

From the view of the weekly, the pair is currently edging past the lower bound of this range. From the perspective of the daily chart, the pair is flirting with the 50.0 retracement level.

The smaller time frames might reveal if the AUD bears aim to force the pair to retrace back to the 61.8  Fib level.

Likely, but not definitely

Butting up against this predication is the Delta variant that has spread Downunder. Several of Australia’s territories have reimplemented lockdown measures, while quarantine-free travel between the country and its close partner, New Zealand, has been temporarily halted. In saying this, the effects of the current lockdown measures are not expected to be incredibly disruptive and are not are strict as those implemented throughout 2020.

The story is a little different in the US. Very little concern appears to be directed toward Covid Classic or its Delta Variant. The success of the US vaccination program seems to quell fears of Covid. The Australian vaccination program has been much slower than the US. The Aussies had the advantage of taking their time in dispensing vaccinations, as the virus was not rampant in the country.

The consequence of this slow rollout means that the tables have turned in the global race to recover from Covid. Like Australia, the countries that eradicated the virus early are now behind the ball with vaccination and thus more suspectable to further waves of the virus.

AUD3

Nonfarm Payroll due this Friday

Setting the tone for the AUDUSD for July will be the high impact reports due this week.

On Thursday, we are expecting the Australian Trade Balance (May). Strong Commodity prices, especially Iron Ore, is expected to lift the country’s Trade Balance to a surplus of AU$10B. Industrial metal prices moving forward will be a factor in deciding the fate of the AUD.

The following day, the US will release the hotly anticipated Nonfarm Payrolls for June. Analysts are expecting approximately 690K jobs to be added to the economy. However, predictions have been off the mark by uncomfortable margins in the past few months. For example, in April, the actual number of jobs created was lower than 650K than predicted.

Since April, the US economy has had time to settle down slightly, but a Payroll figure less than expected wouldn’t be shocking. However, if this was to occur, the impact on the USD could be minimal. In April, the USD reacted mildly to the terrible Payroll figures. This might be because slower job growth can help keep talk of the Fed tapering its stimulus at bay for a little bit longer.