- 2022 likely to be a volatile year
- Safety assets will outperform initially
- Metatrader 5 gives you the tools to navigate the markets
This should be an interesting year to say the least. There are multiple issues going on at the same time, which almost always means one thing: volatility. The one thing that volatility tends to lead to is a lot of “risk off behavior”, which can lead to a lot of headaches. However, this is not to say that volatility does not lead to trading opportunities. In fact, the volatility that we should see during the year could fuel huge profits if you know what to look for. As a trader, you can download Metatrader 5 and take advantage of the macroeconomic conditions moving markets.
Interest rates and inflation will lead the way
Two of the biggest drivers of the market during the next 12 months will almost certainly be interest rates, and inflation. As inflation increases around the world, central banks will be forced to react. The idea is that higher interest rates will cause less borrowing, and therefore less demand. That should in theory drive down inflation, as less people will be competing for the goods and services available.
Inflation obviously is an issue, but the question at this point in time will be whether or not inflation continues, or if it fades away? While most pundits are running around with their hair on fire due to the higher than expected inflation numbers late 2021 and early 2022, the reality is that the rate of change is already starting to slow down. Because of this, we are seen interest rates drop a bit as buyers have stepped into the 10 year bond market. While this is not necessarily something you can count on longer term, but the reality is that bond traders, which are quite often thought of as “the smartest money in the room”, are already suggesting that the Federal Reserve cannot raise rates as aggressively as the narrative suggests.
One of the major drivers of every day inflation is energy, which of course needs to be watched very closely. We have a bit of a dichotomy in the energy markets at the moment, as natural gas is very cheap in the United States, while it is very expensive in the European Union and Asia, due mainly to geopolitical issues. Crude oil has been very strong to kick off the year and should continue to show signs of strength through the first half of 2022. OPEC+ has been struggling to produce as much as needed, especially as economies around the world reopen.
How to take advantage of market conditions using CFDs
By entering the CFD market, you have the ability to easily buy or short various stocks, indices, and commodities. All of these are interest-rate sensitive, offering plenty of opportunities for traders. The CFD market can be accessed in order to take advantage of the macro backdrop, as it gives you opportunities to trade large amounts of markets beyond the usual currency markets typically found on Metatrader 4.
If you understand that technology tends to suffer at the hands of rising interest rates and tightening monetary policy, you also recognize that the exact opposite is true. Because of this, it is very likely that the technology stocks that have been sold off so aggressively in the early part of January will recover quite drastically. (This lends to the NASDAQ 100 being an outperformer later this year.) In fact, it is very likely that by midyear, a lot of the big winners and large cap technology stocks like Microsoft, Tesla, and Netflix should come back into favor. This will be especially true once the Federal Reserve changes its tune. In the meantime, safety will be the most important thing to look for the market. By using the CFD market, you have the ability to buy little bits and pieces of what would be larger contracts, such as the 10 year note in the United States, long considered a safety asset.
Risk appetite returns midyear
There is a strong argument to be made for a very difficult first half of 2022. There are a lot of different things happening at the same time, including the Russia/Ukraine tensions, the China/Taiwan tensions, and of course whether or not the Federal Reserve will be willing to raise rates four or more times during the year? The Federal Reserve has a long history of doing the wrong thing at the wrong time, so it is very possible they do. However, this should lead to a massive reversal of policy once the mistake has become obvious.
Sometimes, “We get paid to wait.”
One of the greatest investors of all time, Jesse Livermore once stated “We get paid to wait.” What he meant by that is the market does not always offer a valid trading opportunity, or for that matter one that is worth the risk. However, once the volatility starts to drop, it is at that point that longer-term “smart money” starts to accumulate assets. By being able to download the Metatrader 5 trading platform and accessing all of its markets, you have the ability to slowly build up a portfolio for when the market turns back around. By being able to trade in very small increments, you can do so very safely.
