Anticipation with risk events : Case study USDTRY
Fail to plan, plan to fail
I hope you managed to make some points out of yesterday's post. The scenario outlined occurred and price was entered on the back of positive NAFTA news. The recent NAFTA optimism has receded now, so profit should be taken on that play from yesterday now.
Turning to today's post Turkey's domestic outlook has been troubled lately. The country runs at a current account deficit (it needs to borrow money to balance the books), so the USDTRY strength has been particularly concerning for Turkey as the cost of borrowing effectively increased via the weakness of the Lira. Previously, the central bank failed to intervene and raise interest rates. However, today they will. Now, we knew this for some time, since the bank stated as such on 3 September. Justin did a great post on it at the time.
I was talking about this setup with an FX trader who lives near me. We met up for a coffee this week and I was chatting with him about this setup on the USDTRY for this week. Having known the above you could have traded into the event. The obvious place was to short USD/TRY from the 100 and 200 1hr chart convergence. The reason that this was obvious was because we knew in advance that the central bank was going to raise interest rates. Therefore, we knew that USDTRY was going to be offered into today's meeting.
Learn to anticipate the next move
Good surfers obviously have to develop a great skill in not just riding the wave, but also seeing where the next big wave is coming from. They anticipate the swells. If you are anything like me in the water I see the big waves come and just hope I can hold my breath long enough to not drown! In trading you need to see the next big wave, and then get ready to take advantage of it. Had you done what was outlined above you would be sitting in excellent profit this morning and could have removed the position before the rate announcement later today at 1100GMT. So, I hope that you will take this away and start to recognise events that you can trade 'in advance' and position yourself ahead of time. Look ahead on the calendar and try to find another trade like this. Anticipate what's coming. I hope that you have watched Greg's video on anticipation in trading? If you haven't book out 10 minutes, grab a coffee and watch it here.
Now, this trade has passed. However, another option is to enter USDTRY short a few minutes before the announcement and then pull your position on the short spike. The danger, of course, is that the CBRT surprise the markets. Remember that Justin reported that it needs a hike of 300bps. So, a miss from that figure may give another long USDTRY option. Manage your risk, so a surprise is not too painful, and that offers another bite, or two, at this cherry.