The coming market shift: what can you trade in 2023?
By Paul Reid
18 April 2023
Most countries are witnessing pre-recession challenges and war-related complications, which begs the question, what can you trade right now? What’s safe? And is everything about to turn bearish?
Let’s have a look at the most influential assets and classes in the trading world and see which offers the most interesting potential in today’s brisk financial climate.
Trading major currencies
All major currencies include USD in the pairing, which is on shaky ground right now. Just consider the implications of US debt alone. $31.5 trillion (USD) in national debt. And then there’s the $7.2 trillion worth of US debt held by countries around the world. Of those 37 countries, Japan holds the most with $1.08 trillion in US Treasuries. The second-largest holder is China, holding $870 billion.
USD’s only saving grace is that the currencies completing the pairs will also be weakening and busy countering emerging scenarios that could lead to collapse. An economy is a very delicate balance, and at times, a very fussy child.
Even so, it’s not hard to imagine USD falling against all of its major pairs – by how much is the question on the lips of every economist, trader, and market analyst.
Think about it… everything a country could get hit with all at once. Post-pandemic conditions and wild inflation continue for many countries, and then there’s the petrodollar weakening, looming global recession, war complications, costly climate change disasters, and civil unrest. The U.S. is facing multiple struggles with unwavering composure and a very optimistic media room.
To dig deeper into this topic, read this article, especially if you are considering trading USD-related products.
Trading minor currencies
As usual, the minor currencies are behaving with high unpredictability. Chart patterns are changing, and fundamental releases are not influencing the markets in ways that make sense.
It’s hard to say how the major economies will affect minor nations, but most countries will have economic struggles on the horizon. Expect a lot of forecast-resistant volatility with minor currency pairs.
Keep in mind the countries that have ties to OPEC and BRICS. That could become a major influence in minor currencies as the year rolls on.
Note: With great reward comes great risk, so set leverage with volatility in mind, and have an equity cushion for the unexpected if you choose to trade minors.
Bitcoin is in spring bloom again, and many of the altcoins are being pulled in the wake. But we all know that crypto price dynamics exhibit strong sentiment-based price action that often deviates from the economy.
The recession won’t likely prompt institutional investors to switch to crypto assets. Putting the fate of a country’s future on an asset that can grow 300% in a few months and crash with equal haste is way too risky. So don’t expect big coin purchases from the banks.
As for the trading fatcats, times are hard for them too. Other investments that cannot be abandoned so easily are becoming costly, and only the bravest billionaires will go out on a crypto limb this year.
Some might put in a toe if they feel the hype is not yet ripe, but very few will jump in with massive equity to try and generate rallies that equal past highs. Claims of 100K will soon start circulating. Take them for what they are — FOMO triggers and motivations. Leave greed and emotion out of trading, especially crypto.
Nevertheless, Bitcoin has legs and we are finally seeing a trend forming. Retail traders will jump in and add a body to the legs, but when prices form the first shoulder, many will exit early, and the crash that follows could be faster than we’ve ever seen. Everyone is expecting it. Crypto sentiment may well create another self-fulfilling prophecy.
Your reaction times to a crypto reversal are paramount. It’s a good idea to put the Exness Trade app on your mobile and get real-time notifications. You’ll get warning signals of possible sell-offs, along with other breaking news and major trading releases. The point is, stay close to market news and the charts. When the hype is loudest, consider closing all crypto orders.
US stocks and indices still look strong at first glance, but that stability depends heavily on the strength of the USD. With the USD printing presses working overtime, the greenback will lose value rapidly when the fallout begins.
In the past, when USD was about to plummet, it presented itself in the stock market like an early warning system. Global investors and foreign banks lose confidence and reduce exposure to US stocks. What follows is a bloodbath, and like the dot-com bubble, only the big and strong survive and thrive.
If you plan on trading stocks, consider those that will be needed during a very harsh economic climate. Unemployment will be high, consumer prices rising, and governments multitasking in the hopes of avoiding a total meltdown.
What kind of companies could thrive or benefit from a recession? Seeing profits from stock trading might require a very long open order. It might be wiser to wait for everything to go on sale, then jump in and hope the US rebounds quickly.
The European and Asian indices will be a tough one to calculate. Those assets will require a lot of research, but could ultimately become a flowing source of opportunities both short-term and long.
Whenever billionaires and nations face a financial reset, they tend to fall back to the precious assets class, and the original of all things precious is gold. But will XAU be a good place to park wealth this time?
Over the past five months, the price of gold has surged 20% higher and is now approaching its all-time high, causing many investors to become excited about its potential.
While typically, rising prices lead to lower demand, investors tend to extrapolate recent trends and assume they will continue indefinitely. However, trends never last, and purchasing an asset at a higher price means less room for capital gains due to a narrower margin of safety.
When late entry FOMO trading volume kicks in, big early investors start sneaking out the back door. They don’t wait for a reversal, they cause them at the heights of the hype. Late traders still holding gold are the ones who get stuck with the bill. Somebody has to pay the profits, right?
In other words, moving your money into gold at today’s high price may be profitable or hedge losses on other holdings, but gold probably won’t offer significant gains at this point.
Trading gold will mean carefully planning entry points within the new range, spotting short rapid reversals, and then getting in and out before the next wave. That high but tepid market will likely go on for a while until the next economic anomaly drives prices down. Expectations for more rallies or crashes should be extended.
The bottom line
There are going to be some new price action patterns emerging if the world order changes. Markets will be resistant to previous forecasting models and algorithms. Those trading with leverage will feel the difference the most.
Exness traders will have some volatility protection thanks to how Exness calculates the stop out line. Exness doesn’t trigger stop-outs from the highs and lows of the spread. Instead, Exness determines the stop-out level based on the spread average, which buys traders valuable time and pips, improving the chances of remaining active for nearby reversals.
Studies show up to 30% fewer stop-outs occurred after introducing the volatility protection algorithms. This feature will be an epic advantage for Exness traders throughout 2023.
The band is on the stage, the lights are set, but nobody is playing… yet. Crowds are watching from all around the world as stocks and indices rise, and USD shows a forming bullish trend range.
Everything looks great right now, and many traders limiting their fundamental analysis to US-favoring info sources will see stop outs when the glass floor finally breaks.
Gold has already ignited, spiking in the middle of its own 5-month bull run. Oil charts show a very similar price action to gold, rebounding from 66 to 80 in less than a month. Too late to board that train? Maybe.
Shorting USD seems like an option worth considering, and there will be plenty of assets to short if the recession lands hard at the end of this summer, as most analysts are now forecasting.
Just keep one thing in mind if you consider shorting assets to ride a recession - nobody ever really knows exactly when a recession begins until it’s over. Choose your entry points wisely.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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