74.80 % of retail investors lose their capital when trading CFDs with this provider.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.80 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The 3 best trades of 2022?

This year has been worse for stocks than the pandemic year of 2020, with markets experiencing the seventh-worst decline in history. While buy-and-hold investors were more likely to be short of interesting opportunities in 2022, for traders speculating in CFD stocks, commodities, or currency pairs, the markets offered several dream profit opportunities this year. Today we will take a look at 3 of the best of them.

This year's bear market has been a rather difficult map to navigate for traditional investors buying physical shares. While there are opportunities to invest in counter-cyclical or non-cyclical stocks - that is, stocks of companies whose earnings are not related to the current phase of the economic cycle - however, there is not much of them and their value moves only ever so slightly.

By contrast, if you choose to be a little more proactive in managing your capital for which you choose trading CFDs, you are immediately completely independent on bears and/or bulls. With CFD instruments you are able to speculate on prices going up or down on your chosen CFD instrument (share, currency pair, commodity, futures, etc.). The only market aspect that drives you are the highly volatile movements. And there have been several of those this year.

Trade #1: Short CFDs on Tesla shares

We have already covered Tesla shares in our December articles, ranking them as the second most traded stock in Purple Trading for 2022. And no wonder. After all, Tesla offered plenty of profit opportunities during the year - most of them on short positions. By shorting Tesla stock in 2022, you could have realized profits in the hundreds of dollars per share on several occasions. Picking the best opportunity on Tesla was really hard, and that is also due to the fact that the very best one may be happening right now (December 2022).

At the beginning of every quarterly period, shareholders and investors at Tesla are eagerly waiting for one thing in particular - the report on the number of cars delivered and produced in the previous quarter. This year, that event fell also on October 2 and it was more exciting than ever for several reasons.

While Tesla delivered a record number of cars this year (343k), the market had more confidence in it and was expecting that number to be 30k higher. At the same time, on the other side of the planet, China has started to tighten its restrictive anti-covid policy again, resulting in the closure of many Chinese industrial areas. It is well known that China is “The World’s Factory”', where a majority of products for the Western market are manufactured. Tesla's Gigafactory is also located there, and it too has been closed several times this year.

However, adverse factors for Tesla's stock have also emerged on its home turf in the US. The US Federal Reserve has been raising interest rates in its fight against inflation, and it is widely known that higher interest rates make Tesla's premium cars less affordable. Moreover, the market was still suffering from international transport difficulties, and inflation did not spare virtually any region - the perfect mix for making production more expensive.

Thus, while Tesla stock was trading at $265.25 the week before the aforementioned Q3 delivery and production numbers were released, shortly after the Q3 results release (which occurred on October 19), the stock plunged $20 lower. Traders who kept track by following the aforementioned fundamentals knew for sure that this was an ideal situation for shorting.

Tesla shares evolution on the H4 timeframe in the MT4 platform.
Tesla shares evolution on the H4 timeframe in the MT4 platform.

  • 2. 10. 2022 - publication of vehicles delivered and produced in Q3
  • 19. 10. 2022 - publication of Q3 results
  • 27. 10. 2022 - Elon Musk takes over Twitter
  • 8. 11. 2022 - Musk sells Tesla shares
  • 14. 12. 2022 - Musk sells Tesla shares

Tesla is still searching for the bottom

However, 2 months have passed since October and Tesla’s stocks are still in a strong bearish trend. This time, however, it is the fault of its CEO, Elon Musk himself. It is his personality that determines to a large extent the share price of his car company. Investors seek stability and certainty, exactly the characteristics that cannot be used to describe recent Musk decisions.

Many of you will recall that Elon Musk's battle with Twitter came to a head in October. The world's second richest man initially offered USD 44 billion for the tweeting platform but backed out shortly afterward. Musk probably sensed that Twitter would not be the cash cow he expected and that he was hugely overpaying for his acquisition. In the end, Musk's takeover of Twitter did happen, but the whole process was seen by shareholders as really bad news. This was reflected in a further fall in Tesla's share price.

Money does not grow on trees and so even Elon Musk had to borrow it somewhere to finance his Twitter acquisition. So he started to liquidate his Tesla shares - he has sold almost $40 billion of them since the end of last year. Tesla's stock has fallen by more than $100 since October, and if Musk continues at a similar pace, it looks like this fall may be far from over.

Trade #2: Long on the Forex currency pair USD/JPY

When most investors smell a crisis, they start allocating their capital to the US dollar. And that is exactly what has been happening this year leading to the strengthening of the dollar virtually across all its currency pairs. This gave rise to many opportunities for profit. In fact, we even voted the US dollar and the British pound as the currency pair of 2022. However, the dollar offered great trading opportunities on other pairs as well. For one of the best trades of 2022 on Forex, we chose the USD/JPY currency pair.

Those of you who have been following the USDJPY currency pair more closely will agree with us that the strengthening of the US dollar has been happening gradually ending by the end of October. At that time, the USDJPY currency reached its highest price level in several decades. However, for an interesting trading opportunity, let's turn the clock back a few more months to August 25 - do you know why?

That week Japan was releasing the services PMI (purchasing managers index), which illustrates the situation in domestic manufacturing. The PMI value is numerical and if it is below 50, it means a slowdown, and vice versa. The PMI ended up coming in at 49.2, down 1.1 month-on-month. If by that time some of you were getting your hopes up for an interest rate hike by the Bank of Japan, you would probably agree with us that those hopes began to fade after the PMI result was released.

For those of you who do not know - the Bank of Japan is the last one still holding negative interest rates. Japan also has relatively very weak inflation (2.4% in June 2022). Negative interest rates are supported by this weak inflation. Another factor playing into the unlikelihood of an interest rate hike is the huge debt burdening the land of the rising sun. Thus, any increase in interest rates would essentially be the proverbial shooting oneself in the foot, as it would make bond repayments more expensive. Everything, therefore, suggested that interest rates on the Japanese yen would be kept flat.

Currency pair USD/JPY price trend on D1 chart in cTrader platform.
Currency pair USD/JPY price trend on D1 chart in cTrader platform.

  • 29. 8. 2022 - entry into a long position at the level of 137

The main catalyst for the growth of USDJPY

However, the main reason for the monthly increase in the USDJPY currency pair from 138 to 150 must be sought in the US. Here, the situation around interest rates and inflation was very different. While Japan’s inflation was around 2.4% at the time, in the US it was a record 8.5%. Moreover, in terms of fundamentals (jobless claim report numbers lower than expected), all indications were that the both dollar and interest rates would rise. However, we were still waiting for confirmation - the one event that would kick-start it all - and that was soon to come.

The main signal to enter a long position on the USDJPY currency pair was the weekend meeting of central bankers in Jackson Hole (August 25-27). There, Jerome Powell confirmed that the Fed will use its tools with appropriate force, which, looking at practically the highest inflation in the last 40 years, meant a further tightening of interest rates. Powell also mentioned that high market rates would persist for a longer period of time. All this was water to the US dollar’s mill and it led to the aforementioned surge in the USDJPY currency pair.

Trade #3: Shorting WTI crude oil

Oil in 2022 filled the headlines almost every day. It is not for nothing that we have named it the commodity of the year 2022. However, it is very difficult to choose the best oil trade - because black gold offered interesting opportunities for speculation almost all the time. Many of you can probably think of trading the surge after Russia's attack on Ukraine or the subsequent correction a few weeks later or that long-term downward summer trend that drove oil to yearly lows. For the best trading opportunity, however, we need to look elsewhere.

A situation that we believe was irresistible in oil this year presented itself to the markets on September 7, 2022. That's when the long-term downtrend that had been knocking oil down for the past several months appeared to have bottomed. WTI crude fell from its initial $120 per barrel to $80 at that time. Shortly thereafter, there was an unwarranted rapid rise to USD 90, but this was soon followed by a fall again as part of a long-term downward trend. We have marked on the chart below the ideal entry into a short position at USD 88 per barrel of WTI crude oil.

WTI crude oil on D1 chart in cTrader platform
WTI crude oil on D1 chart in cTrader platform

  • 15. 9. 2022 - entry into a short position at the level of 88 USD


Why this trade?

You're probably asking why we chose this price movement as the best possible trade in oil when there were so many other opportunities this year. The reason was the rather very clear-cut situation on the fundamentals front, to which the market responded in an exemplary manner.

In fact, there were several influences on the oil price in September. On the one hand, closures associated with the coronavirus measures began to take place in China, thereby reducing the demand for oil. This began to worry the oil company owners and executives, who by then were already worried enough about the onset of a global recession. On the other side of all this, the US midterm elections took place. How are the US elections related to the global oil price? Simple - the price of fuel is a political issue like any other, the cheaper the fuel, the happier the voters. So in the US, the government decided to go for a massive release of oil reserves and the price of oil and fuel actually started to fall.

The USD 80 per barrel then acted as an important support level for WTI oil, where we expected the US government itself to buy oil for the national reserves. As expected, WTI crude bounced off resistance at USD 90 and fell to USD 82 within a few days. Those who held longer could generate profits as oil fell further to USD 76 per barrel.

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Important terms

Bearish / Bear market
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It is a designation for a falling market.
Bullish / Bull market
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It's a designation for a rising market.
CFD - contract for difference
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It is a trading instrument; its value is derived from its underlying instrument, which can be for example a stock index or a future contract. Settlement of this instrument type is always performed financially, therefore the client speculates on future value difference of the underlying instrument while he/she does not become the owner of it.

Commodity currencies
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These include the Canadian dollar (CAD), Australian dollar (AUD), New Zealand dollar (NZD). The value of these currencies is influenced by the value of the commodities that the countries produce. For example, CAD is influenced by the price of oil, AUD by the price of gold, iron ore and coal, and NZD by the price of dairy production.
Currency pair
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Currencies are traded on Forex via so-called currency pairs. Each currency pair consists of two currencies.
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Forex is a global market on which currency pairs are traded. The name Forex is derived from Foreign Exchange. The Forex market is the largest and therefore one of the most liquid markets in the world.
Futures market
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Futures markets trade standardized futures contracts. It is designed for larger capital traders. Futures markets are centralized exchange markets.
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A situation in the economy where prices are rising, reducing the purchasing power of consumers. It is a very important indicator for central banks. If inflation is low, it can be a signal to lower interest rates. If inflation is high, the central bank is likely to raise the interest rate.
74.80 % of retail investors lose their capital when trading CFDs with this provider.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.80 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.