How to Win in the Ongoing Trade War – Introduction
In 2017, investors enjoyed their best returns in many years. In that year, global stocks rose by double digits while other asset classes like cryptocurrencies had triple digits growth. In that year, there was a consensus that businesses will be better off with the United States lowering taxes and deregulating the industry.
This year started with a lot of optimism as investors were thinking about what to do with the tax cuts. In the first few weeks of the month, investors added on their positions and markets reached new highs.
Then, things started going south. It all started after February’s jobs numbers which showed increased wages. As such, traders placed their bets that the Fed will be forced to increase rates more times. As a result, the yields on treasury bonds rose which led to the fear that the yield curve will invert. Stocks fell as the threat of an increased pace of rate hikes rattled the markets.
Then, the so-called bad Trump emerged. See, during the campaigns, Trump made two diverse promises to his voters. First, he promised that he would introduce new taxes and boost deregulation. He did all this in the first year. Second, he promised that he would champion what he called fair trade. In this, he promised to levy taxes from imports. After purging his globalists advisors, Trump went on a rampage. First, he announced that he would levy tariffs on steel and aluminum. After this, he announced that he would levy tariffs to Chinese goods.
Last week, the trade war kicked off officially. For long-term investors, the road ahead will not be smooth. Daily news will introduce fresh volatility in the market. For traders, this will be the best periods to trade as volatility brings fresh opportunities.
The first thing you need to do is to identify assets that will be most affected in the trade war. Agricultural products will of course be the most affected as China starts levying tariffs on US goods. As shown below, corn and soybeans are already trading in multi-year lows. Therefore, as a trader, you need to calculate the impact of the Chinese tariffs on these commodities and buy if you believe they are currently oversold.
Secondly, you need to be ahead of the markets in form of news. When China is involved, you should follow closely the main news sources. Some of these news are widely-covered in the global news services like Bloomberg and Reuters. Some are however not widely-covered. As such, you should follow accounts of investors and policymakers who cover China. In addition, you should activate the notifications from Trump’s Twitter account. This will give make you get the news as soon as he sends the tweet.
Third, you should always have a stop loss on all the trades that you initiate. This is because regardless of the analysis that you do, there is a possibility that a new news can sink your trade. Therefore, in all trades you initiate, you should ensure that you have a stop loss,