SCOTT WELSH TRADING BLOG

Is a Market Crash Coming?

Is a Market Crash Coming?

Mar. 24, 2021

Is a market crash coming?

A lot of people think so.

Here’s what famous financial newsletter writer Harry Dent said last week:

“[The market right now is] the riskiest market since 1929. The difference is that ’29 wasn’t as global. … This may be the biggest bubble crash ever—stocks, commodities, real estate. The next crash is the initiation of the next big [economic] downturn, which will be much worse than the one in 2008-2009.

It will likely come by the end of June, probably sooner.”

Yikes. I have to do something.

Wait, what am I supposed to do?

That’s the real question.

It’s easy to start yelling back and forth about overbought markets, citing facts that may or may not be true about an outcome that may or may not happen.

But what are we supposed to do?

Here’s the thing.

There are a lot of advantages to being a Forex trader.

I know it’s weird and esoteric and off the beaten path. I know a regular investor hears the word “Forex” and their eyes go blank.

But, if you’re a Forex investor, the answer to the question is easy.

Nothing.

An Fx trader doesn’t have to do anything if the market crashes.

For one, it’s not really correlated. Forex does its own thing.

For another, Fx goes Long and Short much easier than the stock market does. The Short side of the stock market is DRAMATICALLY different than the Long side.

Putting the same stock investing rules on Longs and Shorts is an exercise in losing money (on the Short side).

Forex doesn’t have that problem.

There are huge trends up and huge trends down.

So, in other words, if you’re a Forex trader, you don’t have to do anything if a crash comes. In fact, a Forex trader might root for a crash (as macabre as that sounds).

Here’s a basic trend following portfolio trading 60-day breakouts during the Crash of 2008. Trading 1 lot on GBPJPY, GBPUSD, AUDUSD, and EURUSD from 2008-2010, here are the Annual Returns:

(This test used the Breakout Robot on Daily charts).

On a hypothetical $40,000 account, we would have made about 100% in 2008 and about 25% in 2009 just trading breakouts.

No changes, no worries.

Just a big winning year.

Was there a crash? Really? I didn’t notice.

There’s a lot of angst surrounding the question, “Is a crash coming?” People get really worked up about it.

But if you’re a Forex trader, you can just keep doing what you’re doing.

Nothing to see here.

Talk to you soon.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.