One of the biggest account killers in trading, especially in Forex, is the illogical need traders have to trade markets that aren’t moving.
I’ll use the EURUSD to prove it to you. The chart below shows the open positions of various FX pairs, as published by Saxo:
Notice how much more we all trade the EURUSD over anything else.
What’s concerning about this is the “when” of the screenshot above.
The open-positions data capture is not from the part in the chart marked by 2 when the market was moving. No, the open positions screenshot was front earlier in the month, when the EURUSD was doing nothing.
Whether you are bullish or bearish on an instrument, you need one thing always – volatility. Without price moving somewhere, you are dead in the water.
So, were traders staying out of the EURUSD or lightening up their positions while there was clearly nothing happening? Of course not. We’re too stubborn for that. Instead, most retail traders find that price creeps around and gently stops them out, before lazily swinging back again, floating around like a leaf in a summer breeze.
The Rand is doing the same thing right now
First up, let me be open and tell you that I don’t trade the Rand.
My reasons are beyond the scope of this article.
However, let’s breakdown a monthly Rand chart and just talk about periods in its recent, and not so recent history, versus what we see now. I’ve applied a very scientific approach and broken the chart down into two components: Tradable, and not tradable.
You’ll notice a common thread. The USDZAR is tradable when it is going somewhere. Right now, it’s not going anywhere, which means it’s ______________? At the very least, there are smarter places to put your money.
I regularly see punters talking about the “Rand strengthening”, over the last few months
I don’t buy it.
Apart from a few half-hearted whipsaw movements when the country tries to oust its president, the Rand has been largely irrelevant in 2017.
I think that a quick look at the Dollar Index will provide further evidence:
The Dollar Index typically compares the USD to a bunch of other currencies (EUR, JPY, GBP, CHF, CAD and SEK). The idea behind this index is to measure the USD vs. the rest of the world.
And it’s pretty clear to see that the Dollar has weakened largely across the board in 2017 (as a side note, if you’re playing the forex along at home, you’ll note that the Dollar Index has been tradable – it’s moving).
Sure, you could argue that the Dollar Index doesn’t compare the mighty greenback to emerging market currencies, like the Rand, and you would be right.
So let’s have a quick look at how some emerging markets currencies have compared against the USD, in 2017. We’ll use the BRICs countries in my about-to-be calculated emerging markets currency index.
As you can see, there is a reason why we just get a small “s”.
So if I average out my weighted moves, I get a percentage appreciation of 10% of these emerging currencies vs. the USD over 2017.
How does that compare the standard Dollar Index?
Well on 1 January 2017, the index opened at 102.84 and opened on the 30th of August at 92.28. This move is a 10.3% depreciation of the Dollar.
Now that we have established that the Dollar has depreciated more or less consistently across the board, let’s acknowledge that the Rand hasn’t done anything special, and bring up a weekly chart at the same time:
Have we been seeing Rand strength in 2017, or has the Rand just been treading water against the backdrop of a globally weak Dollar?
I hope the answer is clear.
There are much better opportunities to focus on, and trade.