Rebirth of the Capital Legend

Chapter 255 The divergence between news and trends!
"Oh my God! Are you kidding me? How could this bill be passed? Are the senior officials of the British government crazy?"

After seeing the information disclosed, Sato frowned visibly, looking incredulous as the pound exchange rate quickly broke through the 1.5200 mark and continued to plunge rapidly.

"This is outrageous. How could this bill be passed?" Yamamoto Kyuichi also reacted at this time and couldn't help but complained, "This is completely beyond the predictions of major global investment institutions. It is also completely beyond everyone's expectations. The result of this news... is far from market expectations. It feels that in the pound exchange rate market, the confidence of bulls will be shaken by this news, and the exchange rate trend will continue to plunge!"

"You mean... we should reduce the newly added long positions with higher holding costs?" Sato asked.

Yamamoto Kyuichi responded: "Mr. Sato, I do think so. Our previous expectations for the trend of the pound exchange rate were all relatively radical, and the basic logic of the long expectations was based on the fact that the Bank of England and even the top government officials would maintain a prudent monetary policy, pushing the pound exchange rate to continue to rise. At the same time, we also believed that the proposal of a "referendum on Brexit" would never be passed. But now... the underlying logic that we used as the basis for our investment strategy and trading operations has obviously deviated.

In the financial market, whether it is the stock market, the futures market, or the foreign exchange market.

Its price trend always revolves around expected changes.

Now that the "Brexit referendum" bill has been passed at the British cabinet meeting, it means that expectations supporting the continued strength of the pound have weakened.

Even though the British people subsequently voted in a referendum, they decided that the UK would continue to remain in the EU system.

Even if this result is the case, it is highly likely.

But at least the passage of this bill shows that there are problems with the social ideology and economic development model within the UK.

Since the economic development model has already shown contradictions.

Then, as a currency that reflects economic fundamentals, its market purchasing power and value system will also change, or be revalued.

So I think……"

Yamamoto paused, then glanced at Sato before continuing, "We should not have too high expectations for the continued strength of the pound sterling exchange rate, nor should we aggressively increase our positions near the 1.5200 mark, which would put us in a relatively passive situation."

Just as Yamamoto Hisaichi was speaking.

At this time, the pound sterling exchange rate has further dived to around 1.5170 points.

Compared with the intraday high before the news was announced, the price plunged by more than 10 points in just about 50 minutes.

After listening to what Yamamoto Kyuichi said, Sato smiled and said, "You have a point, but we can't just listen to rumors and rashly change the investment and trading strategies we have previously established.

Admittedly, it was somewhat surprising that the British cabinet passed the bill for a "referendum on Brexit".

But analyze carefully.

It can be seen that the UK and the EU are very closely bound together, whether in terms of economy, culture or politics, and it has long been an inseparable whole, so it is not so easy to separate.

In other words, whether it is from the perspective of the economic development of the UK itself or the political impact on the country's political system.

There is no possibility of Britain leaving the EU.

After all, although there are many people with extreme ideas among the people, the senior officials are definitely rational.

Since there is no possibility of the UK leaving the EU based on all aspects of analysis, the investment and trading strategies we formulated previously are completely appropriate.

I can only say that today's news is indeed somewhat unexpected.

However, if the underlying logic remains unchanged, this news can only affect the sentiment of market investors and speculators.

When the emotional reaction is complete, a small number of long positions that speculate on emotions close their positions and leave the market.

In other words, the short sellers who took the opportunity to launch an offensive are exhausted.

I believe that the pound sterling exchange rate will soon see a strong rebound and return to its previous upward trend, once again rising above the 1.5200 mark and even heading towards a higher level.

thus……

I think this position is not the exit point for reducing positions to stop losses or closing positions to take profits.

Instead, it is a further attack on short sellers and an entry point for a long squeeze.”

"Mr. Sato means... we should continue to increase our positions and continue to force out the Chinese short-selling institutions in the market?" Yamamoto Kyuichi said in obvious surprise, "Doing so is very risky!"

Under his gaze.

In the short one or two minutes that Sato was speaking, the pound sterling exchange rate had continued to plunge to around 1.5150, a sharp drop of 20 points compared to before.

This also led them to increase their long positions around the 1.5200 mark.

Suffered a considerable loss.

Sato looked sharp, nodded firmly, and said, "Yes, continue to increase your position and go long, and the time to strike is now."

Yamamoto Kyuichi never quite agreed with Sato's point of view.

At the same time, he felt vaguely uneasy.

However, he was just a trader, while Sato was the investment manager.

According to the workplace rules of their country, when he disagrees with his leader, he does not have the power to not execute the leader's transaction instructions.

So, after a brief hesitation, Yamamoto Kyuichi

He quickly executed Sato's trading instructions and ordered the traders behind him to continue to increase their long positions in the pound exchange rate around 1.5150.

As the transaction order is executed...

Also with the investment of hundreds of thousands and millions of dollars.

Originally, Yamamoto Kyuichi believed that the pound exchange rate would continue to fall due to the negative impact of the passage of the "Brexit referendum" resolution. He thought that the large number of orders that increased positions at this position would inevitably fall into a loss state.

But he didn't expect that it would be within his relatively cautious expectations.

After briefly hovering around the 1.5150 mark, the pound sterling exchange rate actually began to rebound relatively quickly. In just about ten minutes, it regained the 1.5170 mark.

"Eh... Mr. Sato, the trend of the British pound exchange rate is exactly the same as the trend you predicted just now." Seeing the British pound exchange rate regain the 1.5170 point mark, Yamamoto Hisaichi's face was extremely surprised. At the same time, when his gaze turned to Sato, his eyes revealed a strong admiration.

Sato chuckled. He did not show much excitement or surprise at the rapid recovery of the pound exchange rate to the 1.5170 mark. He just chuckled and said, "It seems that most of the long-term institutions and investment research institutions in the world, facing the result of the British cabinet's passing of the 'Brexit referendum', have the same final expectations as mine."

The so-called market trends will fully reflect changes in expectations.

Since the pound exchange rate can quickly repair the intraday plunge after a rapid dive.

So, the attitude of market funds is relatively optimistic.

In other words, the actual reaction of the market has verified the predictions and judgments he just made, so... it is time to continue to build on the victory and increase positions significantly.

"Since the expectations of mainstream market funds have not changed, there is nothing to worry about." Sato paused and continued, "Increase your position investment. I believe that... the pound exchange rate will soon recover all the losses in the market and set a new recent high."

And just as Sato predicted...

After the news of "Brexit referendum" was released, the stimulating effect on market sentiment completely faded.

A number of long-position institutions in the pound exchange rate market, such as Huifeng Global Asset Management, Pacific Capital, Barclays Bank Foreign Exchange Trading Department, Vanguard Capital, UBS International Capital, Nomura Bank Investment Department, Blackstone Global Asset Management Center Foreign Exchange Investment Department, Vanguard Hedge Fund; Hashimoto Asset, Tianhe Capital... and other major investment managers have made the same judgment as him.

So, as the subsequent market trading time goes by.

In terms of the pound exchange rate trend, the bulls once again took the absolute initiative and continued to squeeze the bears.

"What's going on? Such big news seems to have little impact on the trend of the pound exchange rate!"

After seeing the pound exchange rate continue to plunge more than 70 points, it returned to above 1.5180 points in just half an hour or so, recovering almost half of the plunge and still continuing to rise. At this time, inside the Hong Kong branch of "Huayi Capital" company, in the "Huayi Chengyuan No. 1" hedge fund trading room, Qu Zecai looked at the rapidly expanding fund holding losses on the fund's main control computer, and frowned, not quite understanding this market trend.

Su Yi stood in the middle of the huge trading room, staring at the trend of the British pound exchange rate on the big screen in the trading room. He looked calm. Hearing Qu Zecai's complaint, he smiled and said, "It is difficult to change the inherent cognition before a low-probability event, that is, a 'black swan' event, occurs.

in a sense……

The changes in market trends are the result of constant changes and corrections in everyone's cognition and expectations.

The rapid recovery of the pound sterling exchange rate represents that most investors around the world believe that although the British cabinet has passed the "Brexit referendum" bill, the actual Brexit of the UK is still impossible to achieve and will not happen.

However, since this proposal has been passed.

British politicians, considering their own future political prospects and unwilling to directly offend public opinion, have put the future destiny of the country in the hands of all the people.

This means that the occurrence of extreme results, even if the probability is small, is possible.

In the financial market, every "black swan" event is an extremely low probability event.

However, even though the probability of such an event occurring is extremely small, the damage it causes to market investors is extremely devastating.

I still remember January last year.

On the eve of the "Swiss Franc Black Swan" incident, everyone believed that the Swiss National Bank would keep its promise to support the Swiss franc exchange rate and maintain the stability of the exchange rate market.

But unexpectedly, the Swiss National Bank suddenly gave up its plan to maintain the exchange rate.

This instantly caused a concentrated stampede of longs to cover their positions, causing the Swiss franc exchange rate to plummet by more than 7000 points overnight.

"Boss Su, what you mean is..." Qu Zecai pondered for a moment and responded, "In the event of 'Britain's referendum to leave the EU', will there be an unexpected accident similar to the 'black swan' that no one expected?"

Su Yi replied: "I'm just guessing, I just think there is such a possibility."

"That shouldn't be the case." Qu Zecai said, "Are we really going to leave the EU?"

"But no matter how things turn out..." Su Yi said, "the various contradictions within the UK will only become more and more acute, and the potential for economic growth will only become lower and lower. In other words... although the current pound exchange rate is still breaking upward, the underlying logic of the investment strategy and trading plan we formulated before has been greatly strengthened after the announcement of this blockbuster news."

"That's indeed the case." Qu Zecai nodded slightly.

Su Yi smiled and said: "Since there is no problem with the underlying logic of our investment transactions and trading plans, and this logic is also being continuously fulfilled in the changes in the news, then in the market, in the actual holding process, there is no need to be led by the exchange rate trend and emotions.

Let these long institutions continue to squeeze out the shorts and continue to push up the prices.

There is a saying that goes, the higher you climb, the harder it will hurt when the situation turns around. "

In Su Yi's trading cognition.

Although he knows that price changes reflect changes in market expectations, he believes that financial markets, due to the dominance of short-term emotions, will also experience a so-called "herd mentality", which will lead to a divergence between expectations and the actual fundamental logic of the market, and also lead to short-term miscalculations in prices.

"Okay." After hearing Su Yi's words, Qu Zecai felt much calmer.

Although his understanding of the changes in the pound sterling exchange rate trend and his predictions for the future situation were not as in-depth as Su Yi's, nor was he as optimistic as Su Yi.

But he believed in Su Yi's judgment.

I also believe that in this battle between bulls and bears, they can withstand the continued short squeeze from the bulls and win the final reversal of the market situation.

And even as the entire 'Hua Yi Cheng Yuan No. 1' hedge fund and the British pound exchange rate plunged, it did not reduce its holdings, continued to hold high positions, and continued to adhere to the initial entry strategy.

Aberdeen Asset Management Group, which is also in the short position in the market and holds a number of short contracts on the British pound exchange rate, and its Hong Kong branch's 'Evolution No. 1' hedge fund trading department, has seen its original bearish views wavered as Dennis, the core trader and team leader of this fund product.

"Teacher, the market trend of the British pound exchange rate and the expected feedback are completely different from the news!"

Dennis, who discovered the abnormal trend of the pound sterling exchange rate, hurriedly reported it to Frederick, the manager of the hedge fund "Evolution No. 1".

Frederick stared at the trend of the pound exchange rate, was silent for a while, and said, "It is indeed diverging."

"It can be repaired, which shows that the bulls are still very strong in the pound exchange rate market." Dennis said, "The bears' hopes have been dashed. If the bulls continue to force a short squeeze at this position, I'm afraid that many short-term investors in the market will lose confidence and will be forced to close their positions to stop losses."

Frederick turned his gaze to Dennis, his expression calm, and he smiled faintly, saying, "It's not that the confidence of many short-selling investors will collapse, but your confidence will collapse, right? Seeing that the market trend is completely contrary to the news situation, based on the principle of respecting the market trend, do you think your previous judgment was wrong?"

(End of this chapter)