Rebirth of the Capital Legend

Chapter 256: A group of smart big investors followed the trend and entered the market!

Dennis replied: "Didn't the teacher say before that we should respect the market trend at all times? The current trend of the pound exchange rate has diverged from the news. This should be considered as the direction chosen by the market funds, right? And from all aspects of analysis... the probability of Britain leaving the EU is indeed close to zero!"

"Close to zero, but not equal to zero." Frederick smiled and said, "I did say that we should respect the market's choice at all times, but I also said that...herd mentality is extremely dangerous in the financial market. While we respect the market's choice, we must also learn to think independently."

"According to what you mean, teacher..." Dennis pondered for a moment and asked, "Teacher, do you think the probability of Brexit happening is not small?"

Frederick smiled and said, "I never said that, but since the bill has been passed and the people have the opportunity to decide the future of their country, then according to probability theory, the probability of Brexit happening or not should be 50%, not close to zero as you said.

Of course, the reason why I am bearish on the pound sterling exchange rate is not because of the UK's referendum to leave the EU.

In fact, no matter how this matter develops later.

Based on the current development status of the global economy and the expected economic development potential of major core countries.

In my analysis and expectation, the EU economic circle, both in terms of vitality and growth potential, is gradually declining, and at present...there is no sign of recovery.

In other words, although in recent years, EU countries have made many policies and measures to boost the economy.

But in fact, it has not gotten rid of the long-tail effects of the 08 financial crisis, and has not actually resolved many internal conflicts of interest.

Starting from the fundamentals...

Judge with deeper logic.

What I am bearish on in the long term is not only the pound exchange rate, but also the euro exchange rate.

In terms of future economic development prospects and potential, the EU is far inferior to the United States and China, which is rapidly rising and developing. "

"Teacher, are you bearish on European currencies?" Dennis was somewhat surprised after hearing Frederick's words. He paused and continued to ask, "Then why didn't the teacher let us short the euro exchange rate first, but chose to short the pound exchange rate?"

Frederick said: "Why choose to short the pound exchange rate? This is a matter of trading. Compared with the euro, the current pound exchange rate is more deviated from the fundamental expectations. In addition, after the entry of Chinese institutions, other funds and institutions continued to squeeze out, which made the pound exchange rate reach a recent high, providing us with a better short entry point. So... this makes me see the excess return opportunities on the pound exchange rate first."

"Is that so?" Dennis suddenly realized and asked, "Then what is your long-term expectation for the exchange rate trend between the pound and the euro?"

Frederick said: "It is difficult to say in the long term. After all, even the smartest analysts on Wall Street find it difficult to have a specific quantitative analysis of the global economic development situation and market changes in a few years. We can only grasp the current market situation based on the existing fundamentals and the macro trends of the market."

"From your analysis..." Dennis said, "Do you think that what Mr. Su of Huayi Capital did is actually right?"

Frederick said, “Yes and no.”

"What do you mean?" Dennis asked in obvious confusion.

Frederick said: "I said it was right because Mr. Su of Huayi Capital was right in his investment strategy of shorting the pound exchange rate based on the fundamentals in the general direction of the pound exchange rate trend. I said it was wrong because I thought that Mr. Su's entry point in the transaction, that is, the timing, was obviously problematic.

Before Mr. Su intervened in the pound exchange rate market.

According to the previous trend of the British pound exchange rate, its exchange rate has continued to fall for almost a year.

In other words, in the pound exchange rate range of 1.4500 to 1.5500, there is a strong desire to cover the existing short positions. Moreover... due to the Fed's recent continued dovish remarks and the domestic general election factors in the second half of the year, the Fed has no motivation to change the current monetary policy and raise interest rates in the next six months.

This makes it difficult for my country's US dollar currency to maintain a sustained strong exchange rate trend in the global foreign exchange financial market.

The exchange rates of the British pound and the euro are closely related to the trend of the US dollar exchange rate.

Ultimately, under these combined factors, the trend of the pound sterling exchange rate has formed a consistent market force for continued short-term increases.

If it were me...

The correct operation should be guided by the basic strategy of being bearish on the pound exchange rate. Wait until the existing short positions are almost covered, the bulls continue to squeeze out the shorts, and a certain psychological expectation is achieved, and there is corresponding stimulation from market news, then enter the market with a heavy position.

In this way, we will not appear so passive, and will not continue to be squeezed out by longs and fall into the desperate situation of being on the verge of liquidation. "

"Then teacher, when do you think is the best time to choose the timing?" Dennis asked again.

Frederick turned his gaze back to the pound exchange rate trend, his eyes became sharp again, and he smiled and said, "Now!"

"Now?" Dennis' heart skipped a beat and he said in surprise.

Frederick nodded and said, "After this period of time, the long and short positions in the market have changed. Now, the net long position in the pound exchange rate market has reached nearly 30 lots, which means that most of the previous short positions in the market have been covered and closed.

In addition, the proposal of "Britain's referendum on Brexit" was reviewed and passed by its cabinet.

This shows that the stimulus from the news has already been formed.

At the same time, the pound sterling exchange rate has rebounded rapidly from around 1.4500 to around 1.5200 in the short term, an increase of more than 700 points. It has also fully fulfilled the expectations of funds going long below the 1.5000 mark, causing many short-term long funds with floating profits in the market to have a strong desire to realize profits and close their positions to stop profits.

Taking all these factors into consideration, we can make a preliminary judgment.

If the pound sterling exchange rate continues to rise, the bullish force and upward momentum that can be formed will only become weaker and weaker.

besides……"

Frederick paused and thought for a moment before continuing, "You just said that the major global investment institutions and many fund groups in the market generally predict that the probability of the UK leaving the EU, which has already passed the 'Brexit referendum' bill, is zero.

This kind of consistent expectation, in my opinion, is also an extremely dangerous thing.”

"Something extremely dangerous?" Dennis was obviously confused when he heard Frederick's words.

Frederick nodded and continued, "The general consensus of expectations also explains the outcome of this incident. If it is consistent with everyone's expectations, then the impact on the market will be very limited, and there will be no opportunity for excess returns.

On the contrary, if this happens, the result will be the opposite of what everyone expected.

Then, the impact of this result on the market trend will be quite drastic and destructive, and it is very likely to become another "black swan" event.

So, when gambling on such events.

From a trading perspective, we cannot do what the majority of investors expect, because if we do so, it will be difficult to get excess returns once the expectations are fulfilled.

On the contrary, if you use a light position to do the opposite of what most people expect and control the stop loss, you may get excess returns.

Therefore, whether from a purely trading perspective, or from an analysis of long-term fundamentals, there is also an analysis of the Fed’s monetary policy intentions in the second half of the year.

At this stage, the profit and loss ratio of shorting the pound exchange rate is better than that of long the pound exchange rate. "

"But teacher... Brexit, whether from a rational or emotional analysis, should be completely impossible, right?" Dennis said, "First of all, other EU member states will definitely not allow it. Without Britain, would the EU still be the EU? Moreover, whether it is politics, economy, culture... and other aspects, Britain and the EU have formed a situation where you are in me and I am in you. How can they leave?"

Frederick smiled and didn't take Dennis's question too seriously. He responded with a smile: "Before every 'black swan' event, according to normal logical reasoning and everyone's cognition, it would be considered something that is impossible to happen.

The reason why the "black swan" is called the "black swan" is because the probability of its occurrence is extremely small.

But this extremely small probability should not be ignored by us.

Because this kind of extremely low-probability event is completely unexpected, once it happens, the damage it will cause to the market with consistent expectations is quite astonishing.

Of course, this happens often.

While risks are being triggered, there are also huge opportunities for huge profits hidden.”

While Frederick was talking, Dennis carefully recalled the several "black swan" events in the history of global financial markets over the past decade.

Have to agree with Frederick.

"Then, teacher... according to your views and strategies..." Dennis asked after thinking for a moment, "should we immediately follow the short position of the British pound exchange rate and increase our short position?"

Frederick said: "Continue to increase the number of short orders. This position has already met the heavy short entry point I mentioned just now."

"Okay!" Dennis nodded.

Then he calmed his mind and quickly directed the trading team behind him to execute the trading instructions issued by Frederick.

And with the hedge fund product "Aberdeen Asset Evolution 1" led by Frederick, the number of short positions has increased massively at this position.

The pound exchange rate had rebounded strongly to around the 1.5200 mark.

Once again, it was attacked by the short-selling forces.

Therefore, in the subsequent short trading period, the pound exchange rate trend slowly fell back and maintained in the range of 1.5160 to 1.5190 points, unable to effectively break through the 1.5200 point mark, further highlighting the fierce momentum of the bulls' continuous short squeeze.

And, when the pound exchange rate moves.

It has changed from a continuous short squeeze breakthrough pattern to a range oscillation pattern.

At the same time, the news that the "British Referendum Brexit" bill was approved by the cabinet spread throughout the global market and further fermented.

Many retail investors and hot money groups who had previously followed the trend and gone long.

With profits in hand, they began to close their positions and take profits.

The profit-taking and closing of these long positions further suppressed the upward breakthrough of the pound sterling exchange rate.

As a result, when the U.S. market closed late on Friday, June 6, the pound sterling exchange rate failed to truly regain the 3 mark.

Faced with the pound sterling exchange rate which has finally slowed down its breakthrough trend.

All traders of the hedge fund product 'Huayi Capital Chengyuan No. 1', including Qu Zecai, who had finally arrived at the weekend break, breathed a sigh of relief.

However, even though the market closed, everyone's nerves relaxed briefly.

In global financial markets.

On the online platform where numerous foreign exchange investors from home and abroad gather.

Regarding the trend of the British pound exchange rate, which has accumulated long and short positions of one million lots, bullish views and bullish sentiment still have an absolute upper hand.

Moreover, compare the long and short positions data of major institutions last week and even a few days ago.

It can be clearly found that institutional groups 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, etc., are still in a trend of increasing long positions in the pound exchange rate.

Regarding the continued increase in the number of long positions by various institutions.

Su Yi still behaved relatively calmly, but Qu Zecai was shocked when he saw the data.

"Boss Su, these powerful institutions have more and more long positions, which will put more and more pressure on us to hold positions." Qu Zecai said, "And looking at the situation, these counterparty institutions are obviously determined to use their financial advantages and huge influence on the market to guide the pound exchange rate to continue to break upward, further forcing us to stop losses or liquidate our positions!"

"Don't be afraid." Su Yi said, "We still have about $5 million in cash available. As long as we have funds that have not been invested in the battlefield, it will not be easy for these institutions to go against the trend and use their financial advantages to force us to liquidate our positions. Besides, there is a lot of smart money in the market. Among the well-known institutions, not all of them are long. Doesn't the hedge fund product 'Aberdeen Asset Evolution No. 1' have a short position of more than 2000 million US dollars? This shows that we still have teammates."

"I never expected that 'Aberdeen Asset Management' would be the main force in short selling," said Qu Zecai.

Su Yi smiled and responded, "In the financial market, for an investment institution, the most fundamental factor in their choice of long or short investment strategy is the probability of obtaining excess profits within their own cognition. After the 'British referendum Brexit' bill was reviewed and passed by the cabinet, there will definitely be smart money speculating in the market to short sell. This is not surprising. The $2000 million short position of 'Aberdeen Asset' is most likely not the end, but the beginning, and... I predict that more smart big money will join the army of short sellers in the future."

When Su Yi said this, his eyes were extremely firm and confident, as if he didn't care at all about the fund account that had already lost $2 million.

Qu Zecai noticed Su Yi's expression and was unconsciously infected by him.

The confidence in my heart gradually strengthened.

Su Yi thought about it and was about to continue discussing the subsequent trading strategy plan with Qu Zecai, when his cell phone suddenly rang.

(End of this chapter)