After the Flood

  • Market moving a little too much one way
  • Don't get sucked in to buying Pounds here
  • Wait for opportunities after the outcome

A LITTLE STRANGE - I'm surprised to see the market leaning so much to the expectation the remain vote will win out in today's referendum. Don't get me wrong, I think remain is the result that will come through. But Cable to fresh 2016 highs on referendum day seems like the market could be leaning a little too heavily on the expected outcome. The risk of course is that vote leave comes through. If vote leave comes through and the market is so far on the other side, the fallout would be an absolute disaster. I have no exposure to the Pound, Euro, Franc or Yen at the moment and will most likely wait it out. 

FOOLISH PROPOSITION - To trade right now, even if you have a reasonable expectation of the outcome, seems to be a foolish proposition. If you buy GBPUSD now, even if you're right, with the market having already priced in the remain outcome, the follow through on confirmation of this fact isn't likely to be all that impressive. At the same time, if you're wrong and the leavers win out, bye bye trading account. So is this the type of risk you want to take? Better to make your money when conditions normalize. 

THE BETTER PLAY - In fact, over the years, I have found some of the best trading opportunities to come after such event risk. In the hours after the market becomes aware of whatever it is the market is waiting for, there are often some major moves that throw prices into a different area code. At that point, all of a sudden you are looking at a much more liquid market that has deviated significantly from where it was trading pre-risk, quite possibly on an overreaction. And so, this sets up a more controlled trading opportunity where you can step in and fade the overextension. This is how I look to play these things. 

Some of the best trading opportunities come after big event risk. Via @joelkruger

SOME DETAILS - Just as a reminder, polls close at 10pm London time, with the first batch of results not expected until just after midnight London time. Final results should then be known by 7am London time on Friday. If you want to take a shot and trade GBP (EUR, JPY, CHF) today, be very very careful and make sure you do so before the initial results come out. Otherwise, it may be worth watching some of the other less correlated markets out there, unlikely to react as dramatically to changes. 

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