*OspreyFX would like to state that traders should research extensively before following any information given hereby. Please read our Risk Disclosure for more information.
Covid-19: Trading FAQs Part 1
The outbreak of the COVID-19 pandemic has been unprecedented. Its impact stretches across every part of the global economy and it is creating many speculations about consumer sentiments. During times such as these, it’s important that traders stay on top of the latest updates.
With this in mind, we have compiled answers to the most frequently asked questions that are circulating online.
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1. Is Bitcoin the answer in a Financial Crisis?
The answer to this question is still relatively unclear. Sentiment plays a substantial role in determining a currency’s value and people generally turn to other currencies when trust belief in a particular currency is lost. The dollar has been regarded the “safe- haven” fiat for many for decades primarily because it’s the world reserve and the denomination for many international business deals. However, in the midst of the current financial crisis, speculation is present across all markets, Bitcoin’s origins are intrinsically linked to recession since it was created as a means of specifically to prevent situations similar to the 2008 recession. In recent months, we have seen the introduction of new crypto laws in India, South Korea and Germany giving reason to believe that mass adoption is becoming closer. This, however, raises the question as to whether it is the answer in a financial crisis.
Undoubtedly Bitcoin has many advantages, namely:
a) It represents a decentralized response to financial regulation.
b) It is easier obtained in comparison to fiat currencies.
c) It represents a strong correlation between Bitcoin price spikes and crises (for instance the Greek financial crisis).
Since the outbreak of COVID-19 however, BTC has followed patterns that are very similar to other assets (such as Gold and S&P 500) which has raised concerns among traders. During a crisis, people’s concerns about losses is heightened. Therefore, while BTC may seem like a “safe- haven” it still struggles with price volatility. So, is regulation a necessary evil for stability?
It is too early to say whether the current situation will play out like previous bubbles. Further analysis is required to see if the leading cryptocurrency lives up to its expectations. It will certainly be interesting to observe how market turmoil will affect the pre and post outcomes of the upcoming halving on 11th.
2. Is it better to follow your gut or trust the guidelines?
Trading is not a game that should be taken lightly, it requires knowledge, consistency and a lot of patience. Guidelines are in place to help traders along their journey. A trading plan is inevitable for success but it is also, important to follow key guidelines regardless of your trading abilities:
a) Be aware and in the know.
b) Trade with conviction and stay disciplined.
c) Learn from your mistakes.
d) Embrace volatility.
e) Make peace with losses.
The more experienced you become, the more these guidelines become second nature. It is at this point that the ability to anticipate market movements kicks in. This is also known as the gut feeling and is something that is gained through exposure and experience within the markets.
Although your gut feeling will not always steer you in the right direction, research has shown that developing one can lead to more trading successes. As they say, Monkey sees monkey does, and recurring patterns help you to develop an intuitive feeling and in turn help you to spot “déjà-vu” episodes. To get a better understanding of gut trading and how traders can build a well-informed instinct click here.
3. When is the right time to buy the dip?
Buy the dip is a basic investment strategy. It doesn’t mean go all in while an asset is going down, but average in as it is in a downward trend and/or buy after it settles. This strategy is much safer to use in a bull market, where the general trend is up or sideways. The concept is the same, that is, aiming to buy low. The logic behind this is that it’s a better tactic than waiting until prices are high and then exposing yourself to sell low.
4. What is OspreyFx’s preparedness plan?
OspreyFX will be keeping you updated with the latest COVID-19 news and information.
For new traders, now is the perfect time to learn more about the industry while for those who can’t work remotely, it’s the perfect opportunity to start a new career. Indeed, online trading opportunities are not limited by the outbreak but on the contrary, proof that the technology is here to stay.
5. Which investments are the ones to watch?
The past 6-8weeks can only be described as a rollercoaster in terms of market events. As we have mentioned previously, trading is still a profitable endeavour during crises. Indeed, traders can rest assured that their money can still be put to work. Here are OspreyFX’s top recommendations based on the current market situation.
Stocks
Positivity prevails this week in the financial markets as S&P 500 Index is once again in a bull market, with a 20% gain from its low point of last week.
a) Amazon is easily one of the strongest companies in the world today. It is living proof that even in instances of market volatility their CEO Jeff Bezos can get $6.4 Billion richer with Amazon stocks hitting a record high. Should you buy at the high? You could do far worse.
b) Netflix is a clear winner in the battle of the lockdown. The entertainment giant’s stock is bullish and on trend to hit a new all-time high.
c) Proctor & Gamble is a consumer goods corporation that is also a front liner, as people scramble to buy household goods around the world. P&G has recently revamped its product offering resulting in a 12-month return of 2.6% and a robust sales growth is expected heading into Quarter 2 2020. Furthermore, the corporation’s dividend has increased by 6% and so it marks, the 64th consecutive time that the company has increased its yield.
Foreign Exchange Market
It is hard to make specific investment recommendations for the forex market in view of its ever-changing nature. What is bullish today might be bearish tomorrow. While, the US Dollar has always been regarded as the safe-haven asset during crises, we are yet to see the impact of the current situation. Our recommendation is to keep your eyes sharply peeled on the market on a daily basis and particularly what. is happening with the majors (EUR/USD. GBP/USD and USD/JPY).
Cryptocurrencies
Cryptocurrencies are battling through the COVID-19 scenario just as much as other assets and have seen its fair share of volatility too. These are the two top cryptos with the most potential:
a) Bitcoin (BTC) – This may seem like an obvious choice. Although price drops have been as high as 40%, as mentioned previously BTC has a natural tendency to spike after low points. The bear-bull tug of war continues, and it will be interesting to see who will reign supreme.
b) Ethereum (ETH) experienced an almost 100% appreciation in the period between December 2018 to February 2010. The level of confidence in the digital asset is confirmed through the large quantity of miners accumulating it.
That concludes the first part of our COVID-19: Trading FAQs series, we hope that you found this information useful. Stay tuned in the coming days for part 2. Should you require further assistance, please reach out to our the Support Team and we will get back to you within 24 hours.