The 2018 Stock Market Crash: What caused it, and how should you invest?!

Hi thre! Now, this week's video is going to be slightly different than my recent

videos, and that we're going to be talking about the actual markets, the recent

moves that we've been seeing. I think it's important that you know why these

bigger moves in the global stock markets can be very good for us as Forex traders,

especially if you know what you're looking at. Now, before I

continue let me remind you to subscribe to the channel if you don't already do

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where I stream live absolutely free of charge discussing the trading

opportunities for the week ahead. Also, at this juncture, I want to say that

the views and opinions in this video are purely my own. They should not be

considered as investment advice. As always, please consult an investment

adviser before investing any money or any trading instruments that you are

unfamiliar with. Just the usual, disclaimer because today we're talking

about Markets.

So what caused this stock market sell-off? Well, like most things in

trading, it's easy to talk in hindsight but I guess, looking back the writing really

was on the wall: that a major correction was due. But as with trading, it's all

about timing. Always is! And, I'm going to be the first one to admit, I didn't pick

the top of the stock market there at 27,000 back at the beginning of October.

The reason why it dropped so rapidly so fast I think can be discussed from two

points. The first point I think is significant is what was happening to the

US bond market. Now, any of you that follow the economies of the world would

know that the US economy has been growing at a healthy pace more recently.

Up to almost 4%, but the problem that banks, Central Banks face when the

economy is growing so fast is that they have to control inflation. They've got to

keep a cap on inflation. That's what they're mandated to d, and in order to

control an inflation, to contain growth, they've got to move interest rates and

that's exactly what the Fed had been doing. Now, if the economy would grow and

and the Fed would going to contain interest rates then inflation could end

up out of control which is very very damaging. So,the Fed had been moving interest

rates as I've said. And they're also scheduled to move interest rates again

maybe for the rest of this year. One more time and possibly, three or four times

out into next year.Now, the US Treasury bond market was catching u. It was

reflecting these interest rate increases. Just before the global stock market fall

off, the US 10-year Treasury hit almost 3.25%. Now, the

two-year deposit rate was up at three percent. Now, when US got to this

level, I think there is a significant shift in the real money out of stocks

into the safer bonds. And it's no real surprise if after all you're able to get

a guaranteed 3% for tying your money up for just two short years.

It does become quite an attractive proposition certainly for

pensions and funds, and the like. So then there was a big selling of stocks and

the move into the Treasury market. Then you saw a drop of almost a thousand

points, I think, it was in one day and it got some investors nervous, saying all

their juicy gains that they've had over there, over the preceding months wiped

away. And it was bit painful and others then started thinking, okay, I don't want

to lose any more I want to lock in my profits now. And they started selling as

well. And the number two reason I think, or catalyst for the stock market drop

was likely to be, the trade tensions building up around the world with the US

and China fighting it out on a daily basis with tariffs and so forth. Now, this

has resulted in a real slowdown of the global economies in particular, the

Chinese economy which as you know, is the second biggest economy in the world.

Now, if China slows down generally affects commodity prices. They get

affected as well. A slow down in China could lead to a global slowdown and that's

obviously what the markets were thinking. And if the economies around the world

are slowing down, then it's time to move out of the stock market. And that is

exactly what was happening. So how does the Forex market get affected when you

see this shift in money out of stocks? Well, firstly let me say this it's all

about risk-on/risk-off. Stocks are considered more risky so they

are risk-on. Now, when does a move out of stocks that's a move to risk-off? Now,

risk-off generally sees the safe haven currencies such as the Japanese Yen and

the Swiss Franc benefit. There's a move into those currencies.So, why do these

currencies benefit in times of risk-off? Well, these are low yielding currencies.

Japan and Switzerland have negative interest rates so while you keep

your wealth in a currency that has a negative interest rates, it's better off

to buy global stocks. If you want to buy global stocks in a foreign country, you

first of course need to buy the currency of that country, and then for you be

selling the Yen and the Swiss franc against that other currency. Now, if the

reverse were to happen and stock starts going down, then the money is moved out

of those foreign currencies and repatriated back into the Japanese Yen

and the Swiss Franc- the low yielders. Remember, this is not an exact science.

Markets are living breathing entities and don't always

behave as they should, but this is a basic rule of thumb. So when stock

markets are growing and expanding, it usually means that the economies of

those particular countries are expanding, and if a country is expanding, that

basically means more factories are being built more plant is being made more

machinery is being built. So that generally means, the commodity prices

rise. When commodity prices are in demand, countries such as Australia which

produce iron and steel, New Zealand, Canada; these are known as the commodity

countries. These currencies should increase in value. Again, this is just a

basic rule of thumb. Now, you may have heard that expression in the past when

the USA sneezes, the whole world catches a cold. Well, it's pretty true! When the US

stock market drops, the whole world pays attention, and so it should. So basic rule

of thumb, if the US stock market global stock markets were to continue to fall,

you could see a drop in the commodity currencies like the Australian dollar,

the Canadian dollar, New Zealand dollar, and so forth.

You could see a rise in the safe haven currencies such as the Yen and the Swiss

Franc. Now, it does really open up some great opportunities for us in the Forex

markets which is why we're always looking at the global stock market as

well. With the use of controlled leverage, trading the Forex market can

turn your bad losses in stocks into a nice profitable gain somewhere else in

your portfolio. Look, I hope you found this useful; hope you found the video

interesting. Give me a thumbs up if you did, give me a thumbs down if you didn't.

Don't forget to leave a comment! I try to get back to as many as I can of course.

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Facebook, I'll see you next Monday 2PM London time. 'till then happy trading

and goodbye!