Economics

Shall We Trade the Brexit Roller Coaster?

Shall We Trade the Brexit Roller Coaster?

Let's get back to business. We've spoken a lot about our full online course over the past few weeks, but now I want us to roll up our sleeves and get to work.The markets don't stop, so why should we?I've been spotting a few opportunities over the last few weeks and this week is no different!There's one potential opportunity that's so juicy, I'm almost salivating over it (sorry for the mental image, if you're a visual person!)If you purchased our full course, you'll be familiar with the following image from Section 11 (Micro-Strategy / Price Action).If you're not familiar with it, however, it is simply showing the hierarchy of analysis types, based on the number of inputs and the number of potential outcomes.As we move down in the funnel, there are fewer inputs and fewer potential outcomes.

analysis funnel

So based on this type of analysis, what do we make of GBP/USD?On the macro level we're going to enter a minefield, if we look purely at the fundamental picture.Will Britain exit the European Union? At this stage, we don't know.But that doesn't stop the market from going through a rollercoaster ride. Which leaves us with two options:

  1. Run away (you coward!)
  2. Look to capitalise on the activity and volatility (now you're talking my language!)

If we take the fundamental picture in mind, we know that we have many variables and many potential outcomes.So we will take an assumption: that the status will remain unchanged until a referendum takes place (where the public can vote on whether or not they exit the EU).In that case, let's look for opportunities using our technical analysis based on the current picture.

GBPUSD Daily 22 feb 2015

Things are starting to look tasty. But we need to be careful.Are we in the middle of a 'leg 2' trend down? Or are we reaching a double-bottom?If it's a double-bottom, we have a lovely little reversal zone (in the strongest segment of the reversal zone - which is the only one I've shown in the image), as well as a sweet-as-hell Fibonacci construction and attractive ABC formation.So which is it going to be? Are we going up? Shall we trade long? Or are we trading short on a Leg 2?The answer is in the Micro-Strategy... Few inputs, few potential outcomes. Can you see what the correct answer is?As they say in The X-Files: "The truth is out there"!