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The oil market has a habit of looking settled right before it stops being settled. That is the setup now.
Traffic through the Strait of Hormuz has dropped sharply as the conflict around Iran has intensified, and more vessels are going dark by switching off AIS, or Automatic Identification System, signals that usually show where ships are moving. Hormuz is not just another shipping lane. It is one of the world’s most important energy chokepoints, so when visibility starts to disappear, supply risk moves back to the centre of the conversation.
Why this matters now
This matters for a couple of reasons.
The headline move is one thing. The market implication is another. Oil is not only about how many barrels exist, rather, it is also about whether those barrels can move, who is willing to insure them, how long buyers are prepared to wait and how much extra risk traders feel they need to price in.
Right now, three things are colliding at once: disrupted shipping, fragile diplomacy and a market that is already leaning heavily in one direction. That combination can make Brent move faster than the fundamentals alone would normally suggest.
What is driving the move
1 Supply visibility is deteriorating
The first driver is simple. The market can see less, and that tends to make it more nervous.
Transit through Hormuz has fallen sharply, while a growing share of traffic has involved ships that are no longer broadcasting standard tracking signals. In plain English, fewer vessels are moving normally through a critical corridor, and more of the activity is becoming harder to track. That does not automatically mean supply is about to collapse. But it does mean uncertainty is rising.
2 Iran’s storage buffer may be limited
The second driver is Iran’s export and storage constraint.
Onshore storage capacity is estimated at about 40 million barrels, and the market is watching what some describe as a 16-day red line. That is the point at which a prolonged export disruption could begin forcing production cuts to avoid damage to reservoirs. For newer readers, the takeaway is straightforward. If oil cannot leave storage for long enough, the problem may stop being about delayed exports and start becoming a genuine supply issue.
3 Positioning could amplify the move
The third driver is positioning, which is just market shorthand for how traders are already set up before the next move happens.
In this case, speculative crude positioning looks heavily one-sided. That matters because when a market is leaning too far in one direction, it does not take much to trigger a sharp adjustment. A fresh geopolitical shock could force traders to move quickly, and once that starts, price can run harder than the underlying news alone might justify.
Why the market cares
An oil shock rarely stays contained inside the energy market.
Higher crude prices can start showing up in freight, manufacturing and household energy bills. That means inflation expectations can start creeping higher again. Central banks are already trying to manage a difficult balance between sticky inflation and softer growth, so higher oil can make that job harder.
And this is not just a story about oil producers getting a lift. Airlines, transport companies and other fuel-sensitive businesses can come under pressure quickly when energy costs rise. Broader equity markets may also have to rethink the policy outlook if higher oil keeps inflation firmer than expected.
The ripple effects go well beyond oil
There is also a currency angle, and it is less straightforward than it first appears.
Commodity-linked currencies such as the Australian dollar often get support when raw material prices rise. But that relationship is not automatic. If oil is climbing because global demand is improving, that can help. If it is climbing because geopolitical risk is spiking, markets can shift into risk-off mode instead, and that can weigh on the Australian dollar even as commodity prices rise.
That is what makes this kind of move more interesting than it looks at first glance. The same oil rally can support one part of the market while putting pressure on another.
Assets and names in the frame
Brent crude remains the clearest read on broad supply risk. If traders want the cleanest expression of the headline story, this is usually where they look first.
- ExxonMobil is one of the more obvious names in the frame. Higher oil prices can support realised selling prices and near-term earnings momentum, although it is never as simple as oil up, stock up. Costs, production mix and broader sentiment still matter.
- NextEra Energy adds another layer. This story is not only about fossil fuels. When energy security becomes a bigger concern, the case for domestic power resilience, grid investment and alternative generation can strengthen as well.
- AUD/USD is another market worth watching. Australia is closely tied to commodity cycles, so stronger raw material prices can sometimes support the currency. But if markets are reacting more to fear than growth, that usual tailwind may not hold.
For newer readers, the key point is that oil moves do not spread through markets in a neat, predictable line. They ripple outward unevenly, helping some assets, pressuring others and sometimes doing both at the same time.
What could go wrong
A strong narrative is not the same as a one-way trade.
A ceasefire could stabilise shipping flows faster than expected. OPEC+ could offset some of the tightness by lifting production. Demand data from China could disappoint, shifting the focus back to weak consumption rather than constrained supply. And if the geopolitical premium fades, oil could pull back more quickly than the current mood suggests.
For newer readers, the takeaway is simple. Oil rallies can be real without being permanent. A move may be justified in the short term by disruption risk, then reverse quickly if those risks ease or if demand softens.
The market is no longer pricing oil in isolation. It is pricing visibility, transport security and the risk that supply disruption spills into inflation, currencies and broader risk sentiment.
That is why Hormuz matters, even for readers who never trade a barrel of crude themselves.
Bitcoin, the currency of tomorrow, a new age currency, has seen some severe ups and downs over the last few years. From reaching highs of nearly 70,000 dollars to dropping to lows of 17,000 the volatility and action around the cryptocurrency has been startling. Even compared to other traditional currencies the range and volatility of the price has been far more aggressive.
In fact, when compared to other more volatile tradable assets such as indices and equities, Bitcoin still stacks up with how volatile it is. For traders this is an important aspect to consider when deciding what to trade. Recent Chronology Early on, there was a thought that Bitcoin would become a hedge against inflation, or an alternative to Gold or Oil.
With the recent wave of record high inflation that has swept up much of the world the leading cryptocurrency failed this test, and this proved to be wishful thinking. In fact, Bitcoin showed itself to be quite the oppositive of a hedge and was rather much more aligned with growth assets such as the Nasdaq and the technology sector. Prior to May 2022, the Nasdaq and Bitcoin has a correlation of 0.82 out of 1.
In addition, with still so much unknown about how governments and Central Banks will come to treat the cryptocurrency and what regulations may be implemented there is a lot of uncertainty about how market regulation will affect the supply and demand. The chart indicates just how correlated the Nasdaq and Bitcoin were, sharing similar peaks in mid-November 2021 and following very similar price action until July 2022. However, after July there has been a shift in the correlation.
Today, Bitcoin is neither correlated strongly with either Gold or the NASDAQ and has carved out a niche for itself. Whilst the Nasdaq has continued to fall, Bitcoin has seemingly found its bottom. The price of Bitcoin has reclaimed its 50-day moving average which is its short-term support, and the price looks like it may continue to move up.
The range of Bitcoin has also become much tighter indicates, that the overall volatility has reduced and that the price has reached some level of equilibrium showing that neither the buy nor sell side has been able to gain any ascendancy. Due to how vicious the selling has been this may very well indicate the last of the selling. Importantly, even with the increased liquidity that has flowed into the asset from institutions and ETF’s, the price has still been able to find support and not fall int a liquidity vacuum.
Where it fits in? The recent price action brings up a more existential question which is where does Bitcoin fit in on the spectrum of safe to risky assets? Based on the information presented above there is no way that Bitcoin should at this stage be considered as a haven asset.
The price is still too volatile to be considered a safe asset. In addition, there is still so much unknown with how the price might react in the future, specifically regarding future regulations. On the other hand, Bitcoin has exhibited some characteristics of a safer asset, mainly, in recent times, its increasing resistance to high volatility and wild price fluctuations.
This may indicate that it is maturing as an asset. Therefore, at this stage of its life it may be best to classify Bitcoin in its own quasi- growth basket. When analysing Bitcoin for potential trading or investing opportunities it is important keep in mind that it does not act like a traditional asset.
Stop loss hunting is frustrating, annoying and can be detrimental to any retail trader. The premise of stop hunting is that large systemised institutional trading strategies know where the average retail trader or most traders will set stop losses and therefore profit off triggering these ‘stops. Their own algorithm will then deliberately, trigger the stop losses.
For traders there are few things as frustrating as have a well-positioned trade, being stopped out and then watching the price reverse in their original direction of the trade. What is a stop loss? Understanding stop loss hunting requires a simple understanding of what a stop loss is.
A stop loss is a trigger on traders’ position to close the position at a certain price. Generally, once triggered the position will attempt to be closed at the specified price. Stop losses provide an important role in risk management for many traders.
Generally, traders use stops losses to avoid emotional mismanagement and better manage overall risk by having clear exit points for the trade in worst case scenarios. The second element that is important to understand is where traders put their stop losses and why. Retail traders often place their stop losses near important market structures also known as support and resistance levels.
These areas represent strong zones of supply and demand. When support and resistance zones become more and more consistent and more obvious, it can create a clump of stop losses. These stop losses can be thought of as orders that must get filled if the price reaches those points.
This creates an attractive opportunity for large institutions with powerful algorithms that can push the price down and generate profits by ‘stopping out’ traders by triggering these stop losses. Once this process has occurred, the price will often move back in the direction the original trades were positioned for. Why would a system want to trigger stop losses Firstly, when stop losses are triggered, a price tends to see an increase in relative volatility.
Therefore, it may indicate the beginning of a reversal which sophisticated traders profiting. It also allows these large institutions to maximise their own existing trades as it may allow for better entries. Common areas for where stop hunters will look Stop Loss hunting tends to be most active around significant and clear areas of support and resistance.
This is especially true with regards to commonly traded assets. However, stop loss hunting can occur in all assets with various sizes. A stop hunt can be seen often with a small candlestick and a large wick.
In addition, they often occur on very short time frames. Common Area for Stop Loss Hunting At key moving average levels Clear Support and Resistance Levels Historical Support and Resistance Levels ie, Multiyear levels How to deal with Stop Loss Hunting? The obvious tactic to deal with stop hunting is to lower the stop loss below the obvious support and resistance level by a factor of maybe 10%.
This may require smaller trade size, but overall will allow the trade to hopefully avoid these potential stop losses. Treat support and resistance as areas instead of specific price points. Support and resistance do not exist at one price and rather a range of prices that are supply and demand zones.
Therefore, placing stop losses below these 'zones' may put the trade out of arm length of stop hunters. Simply being aware of stop loss hunting may provide some reassurance when a sharp spike in price occurs, to remain in the trade and not exit immediately. Ultimately, Stop Loss Hunting is just another challenge that traders must deal with in the pursuit of profit.
However, with some knowledge traders can adequately accommodate these tricky occurrences.
Mean reversion strategies are some of the simplest trading strategy’s used by sophisticated traders. However, when most traders hear the term, they immediately get confused. So, what is mean reversion and why do traders use it as a strategy?
Mean reversion is the tendency for the price of an asset to move back to its long-term average or mean after explosive moves to the up or downside. Traders can therefor capitalise on the end of these explosive moves by going long when the price has broken down and will revert up to the mean or short when there has been a strong move to the upside and the price will fall back to the mean. This strategy is often compared to trend following strategies in which the price tends to moving solely in one direction over a significant period with traders entering at the lows and exiting at the highs.
Mean reversion strategies can actually be used conjunction with a trend following strategy as trend following strategies will often pullback to the long-term mean. What is the mean? The mean is quite simply the average of a price over a time period.
In trading, the average can often be shown by using a moving average of mid points of ranging price. For instance, on a long term a significant average that is seen as the mean is the 200-period moving average. The 200-period moving average is used so often because of its length.
It provides an average over a significant period of time. Other averages that are often used include the 50 Period moving average and 100 period moving average. All three can be used in different ways to measure different reversions to the mean.
On a shorter timeframe, the Volume Weighted Average Price of VWAP is often used as a short-term measure of the mean as it adjust the price for the volume traded as well. What is the premise behind the strategy? The idea behind the strategy comes from the basic principles of supply and demand.
The price of an asset adjusts up and down until the there is a point of equilibrium or where the buyers and sellers reach a stalemate which then becomes the mean. Economic principals say that over time at some stage this phenomenon must occur. Therefore, even if the price of an asset or exploded, at some stage it will have to revert to the mean.
In addition, this process will occur regardless of the time frame. Over longer time frames, the process will still occur, although it may take much longer. For instance, if looking at the daily/weekly time frame, the process may take days and weeks to eventuate.
The examples below show how a simple mean reversion strategy can bring about large potential gains. Whilst this strategy can be extremely profitable it can also be risky because it can contradict some of the psychology that trading is built on especially in the short term. The mean reversion strategy requires the market to price assets based purely on the long-term supply and demand and markets do not always act rationally.
Emotions such as fear, and anxiety rule the market which lead to price action that can put pressure on these types of strategies. On both examples, after significant price movements towards the upside and downside, the prices peaked or bottomed and then returned to their long term mean indicated by the blue 200 period average.. Utilising a mean reversion strategy can provide high return opportunities for traders who can master the skill and strategy.
For new traders, it can be difficult to know which indicators to use, the saturation of various moving averages, RSI’s, MACD’s and more can be overwhelming and counterproductive. However, utilising relative volume, as an indicator is one of the most important sources of information for technical traders. What is Volume?
Volume is quite simply, the volume of the asset traded over a specified time. This volume is usually shown by bars, generally located at the bottom of a price chart. Each bar represents one unit of the corresponding time period’s volume traded.
It also shows whether the period ended in the green or red. Volume tends to be reflective of the interest in the asset and is therefore a valuable tool. Why Relative volume?
Now that there is a clear definition of what volume is, understanding relative volume is straight forward. It has been established that volume is indicative of the amount of the asset traded for that time. Essentially, most assets will have a consistent or average volume that gets traded over a specified time, whether it be an hour, day, or a week.
Generally, the longer the time frame, the more weight a trader should give to that average. A large spike in the volume relative to the average is what a trader should be looking for. The volume bars are the best indicators of this.
Larger volumes can indicate larger positions being taken and increasing interest. Therefore, increases in relative buying volume can be a leading indicator for a move to the upside. On the contrary, a large red volume bar can be a leading indicator that price drop is about to occur as a large position is exiting.
A rule that many retail traders like to use is to follow the “big money” or institutions. Big institutions cannot just enter or exit their positions quickly like retail traders. Therefore, these institutions leave a trail of their entries and exits, that experienced traders can capitalise on and follow.
Understanding how shifts in volume can indicate, potential break outs, break downs and reversals takes time and practice but is a valuable tool that any trader should utilise to improve their entries and exits. A few examples of volume indicating changes in price action. Apple's sharp increase in selling volume indicated the ‘top’ and has not reached those high since.
Similarly, the chart for Brent Oil showed a similar pattern whereby it could not breakthrough a long-term resistance level and combined with a large volume of selling signaled that the price had peaked. The price for Stanmore Resources saw a big push after the influx of new volume and has its price increase since the first candle. This may indicate that institutions have added the company to its holdings or that significant buying interest has returned.
Further way to optimise using relative volume Anticipating Relative volume shifts by understanding that they tend to follow on from big news events, such as unexpected results or broader macro factors. Combining big volume shifts with a break of a key support or resistance level Combining with other technical indicators. Use a collection of volume bars vs just one to see the shift in relative volume
What is a deflationary Cryptocurrency? A Deflationary Cryptocurrency is one that burns, (mints) its supply. This process lessens the number of coins or tokens on the market over a specific period (generally a year), which reduces supply and increases the price.
In general terms, ensuring that there isn’t an oversupply of a currency can be an important monetary tool to reducing inflation. Evidence of quantitative easing and what can happen when there is an oversupply can be seen by the record high inflation seen around the world. The two largest cryptocurrencies, Bitcoin and Ethereum, are both tipped to become deflationary in the future but for varying reasons Is Bitcoin deflationary?
Bitcoin has a fixed, maximum supply of 21,000,000 BTC that will be fully mined in the year 2140. The current supply of BTC is 19,008,012.00 and 20% of this supply has been lost due to forgotten passwords and forgotten keys. It’s projected that Bitcoin may officially become deflationary once its full supply has been created, as the circulating supply will continue to reduce due to holders’ unintentional losses.
Is Ethereum deflationary? Unlike, Bitcoin, Ethereum does not have a maximum supply. Rather, it has an annual supply cap at 18 million ETH.
For Ethereum to become deflationary, 2 ETH would need to be burned per block; this is because this amount is minted for each block that is mined. As per the historical data, the ETH net issuance will dive lower creating a rally in the ETH price as the circulating supply will be less. A common way to achieve deflation is by burning tokens.
Ethereum does this by minting tokens that are staked or when NFTs are minted. A point worth noting is that cryptocurrencies with a finite supply are deflationary by default. When investors buy and hold the coin, the supply reduces.
Ethereum has temporarily turned deflationary in the last few days. An unknown project by the name of XEN has assisted in the burning of ETH. What is XEN?
XEN is a project created by the “Fair Crypto Foundation,” backed by Jack Levin, one of the first employees at Google working on cloud infrastructure. The ethos aims to empower the individual with a token that starts with a zero supply and has no pre-mint, CEX listings, admin keys, or immutable contracts. XEN, which launched on Oct. 8, can be claimed, minted, or staked and is based on the first principles of cryptocurrency: self-custody, transparency, trust through consensus, and permissionless value exchange without counterparty risk.
XEN can only be traded on Uniswap, where there is very little liquidity. Time will tell if the latest hot cake in crypto turns into just another swindle. Key Takeaways ETH has turned deflationary over the past 24 hours.
High gas consumption to mint tokens for the new project XEN Crypto is the primary cause of the ETH supply drop. ETH's supply has dropped on several occasions since Ethereum completed "the Merge" in September. Are you keen to venture into trading Cryptocurrency pairs, FX, stocks or commodities?
If so, you can do so by opening an MetaTrader trading CFD account with GO Markets here or call our Melbourne based office on 03 8566 7680 to discuss your trading goals with our account managers to get started. Sources: https://au.finance.yahoo.com/, https://xcoins.com/, https://coingape.com/, https://cryptopotato.com/, https://cryptoslate.com/
Long and Short trading and investing strategies are often seen as advanced strategies only used for large hedge funds and large banks. However, retail traders can learn valuable lessons and ideas from this type of trading strategy that is usually reserved for institutional players. What is a long-short strategy?
A long-short strategy as described by its name involves holding a basket of both long and short positions of assets all a part of a portfolio or a singular trading strategy. These assets tend to be equities securities or derivatives but can also be other asset classes such as commodities and FOREX. The idea behind the strategy is that due to the negative correlation between the shorts and long positions they cancel out much of the market volatility whilst at the same time profiting up movements in price in either direction.
Steps to develop a Long Short strategy Establish which assets classes you wish to trade This step involves generating ideas for which asset classes you whish to trade. This may include FOREX, Commodities, Indices, or equities. For many traders, a combination of assets may produce an effective strategy.
For example, someone may choose to allocate 60% of the portfolio to equities, 20% to FOREX and 20% to commodities or 100% to equities. Determine how many assets to hold with in strategy. The aim of this section is to ensure that there are enough assets to be, diversified enough that a significant move in one direction will not blow the strategy out and to ensure.
The strategy requires that enough assets are held to minimise the volatility. If too few assets are used, then the returns may not be consistent enough and prone to large gains and losses. A standard range may include 20 assets with the breakdown of long and short varying from strategy to strategy.
Apportion the % of assets that will be held long and those that will be held short? This step involves an element of discretion and is where the individual trader can utilise their own experiences and edge to enhance the strategy. For instance, some traders may choose to create a 50/50 split strategy.
This means that exactly half the assets will be long, and half will be short. More specifically this split may occur via value weighting, number of assets or by price per share. Alternatively other strategies may involve having a lower proportion of short assets held, such as 20% Short and 80% long.
These types of strategies may work better when in a trending market because the strategy can still make money on assets that are falling in value whilst also taking advantage of the strong overall market trend. Choosing the individual assets to be held This is perhaps the most important step of the process. Choosing assets to hold can be a difficult task and may require both technical and fundamental analysis to find top performing assets to hold long and poor performing stocks to hold short.
The craft of the long, short strategy is performed at this stage as a trader needs to find high performing or low performing assets. An example of a 50/50 Long Short Portfolio construction is shown below. (NOTE this is a fictional Long Short portfolio and is not a real strategy or portfolio) Positives of a Long Short Strategy A long-short strategy may be able to avoid volatile returns and the effect of a choppy market because the short positions can reduce negative returns if the market is falling, and long positions can take advantage of the market is lifting. if a trader can effectively allocate their Longs and shorts, profit can be effectively achieved in most market conditions. Allows a trader to utilise their ‘edge’ for a wider array of assets.
Disadvantages This approach requires active portfolio management. As positions are constantly changing and weightings for different assets change, adjustments may need to be made to ensure that the strategy continues to balance. A Long Short strategy also generally requires a longer time frame then other scalping strategies or intraday strategies.
Having short positions means that the holder of the short is at risk of short squeezes. A short squeeze is something that anyone wishing to short should be aware of. It occurs when to many short positions attempt to close their positions at once.
This can cause a spike in the price and may force bigger positions to close, further driving up the price. Ultimately, a Long Short strategy for trading and investing can be a way to achieve more stability in volatile market conditions and provide a way to capitalise on market movements in both directions. Even just understanding how a Long-Short strategy works can provide traders and investors with enhanced understanding of how market forces impact on trading and potentially provide new strategies.