I’m a new trader currently in the information gathering stage, and I’m trying to make heads or tails out of some things I see on the charts. My goal is to learn a little bit each day, and hopefully wake up in 10 years with a wealth of knowledge. However, I digress.
Looking at the EUR/USD 15 minute chart today, there is a huge bearish spike at 9:30am. I was trying to figure out why. How did everyone know to short? I tried looking up to see if any news came out, but I can’t find anything other than a brief entry in the babypips economic calendar: “Euro-Area leaders hold a special meeting on Debt Crisis and Economic Governance.” It’s awfully short on details, cites no sources, no links, etc. (BTW, some of the times for these economic events don’t even match up with dailyfx.com)
I guess my question is: what happened? If I was trading at 9am, what should I have been doing to anticipate such a move? Which indicators or news sources would have signaled such a move? Where did everyone get their news?
Or is it just random? I don’t have a system or anything. I’m just trying to make sense of the ebb and flow of this thing.
You question cannot be answered. First, what time frame are you referencing? 9:30 where-New York, Frankfurt, Syndey?
Second, there are no explanations which would answer you. These types of spikes occur often. Lately, with the Japan news, the markets are very volatile. Further, trading on a Monday morning is best left to only the most experienced traders-the markets are unpredictable after the weekend break and haven’t settled in yet.
You should always reference a forex calendar when entering a trade. A good rule of thumb is to never trade on a news day. There were two major announcements Monday morning affecting the EURUSD which could not be predicted.
The market definitely has an ebb and flow. But don’t obsess with this level of detail. I would not have chosen either the EURUSD to trade Monday, and also would never have traded on Monday, and I particularly would not be trading in a light of the Japan volatility after the weekend break.
Good questions, but reorient your thinking to building a strategy rather than trying to make sense of the random movements of the market.
Thanks for the reply. It was New York (Eastern) time. Just to clear up, I wasn’t trading. I was just looking back at the chart. I appreciate the cautious words about Mondays. I’ll definitely heed that when the time is right. But how would you build a strategy without understanding market movements?
The mini-panic this morning was not due to a scheduled economic report — it was due to unforeseen news coming out of Portugal.
Here’s how ForexLive reported it.
Note the GMT times of the three news blurbs copied and pasted below:
13:15 GMT = 9:15am EDT, 13:36 GMT = 9:36am EDT, and 13:46 GMT = 9:46am EDT.
Markets whipsawed by Portugal headline
Written by Jamie Coleman
March 21, 2011 at 13:46 GMT
Funny old market…We ignore comments that the government may have to
resign in Portugal if austerity is not passed.That would result in the
need for a bailout…
Minutes later, a stray headline that the majority of the EU sees
Portugal needing a bailout and whammo!
Pretty much the same news…
One resulted in new highs, the other in new lows….
Small stops were triggered below 1.4145 and we bottomed at 1.4138. We
made a session of high of 1.4204 just 17 minutes earlier…
Portugal to need bailout, Dow Jones reports
Written by Jamie Coleman
March 21, 2011 at 13:36 GMT
Majority of Euro Zone officials are convinced Portugal will seek a
bailout, Dow JOness reports.
EUR/US dumped a quick 50 pips.
Also, the US Treasury announces it will sell $142 in in mortgage backed
securities at a $10 bln per month pace. The MBS were bought during the
2008/2009 financial crisis.
Portual government may quit if austerity measures not passed
Written by Jamie Coleman
March 21, 2011 at 13:15 GMT
Reuters reports that a Portuguese government minister says the PM
has made clear that he will not be able to govern if austerity measures
are voted down.He cannot rule out a resignation of the government if
the measures are not passed. Portugal needs to avoid a scenario that
would force a bailout request, says the minister.
Potential collapse of the Portuguese government on the eve of a summit
to ratify the competitiveness pact?
No problem for the almighty euro. It trades at session highs of 1.4197.
Update: 1.4202 trades, ending any doubt about barriers being triggered
in early-morning hours in Asia Monday morning…
Here’s a link to ForexLive — Forex News by Forex Live — scroll back several pages to find the items shown above.
Clint, much thanks. I had a feeling a move like that was too much too fast to just be noise. I did check Forex Live and I see exactly what you’re talking about. I’ll be sure to add that site to my repertoire.
I’ve also been reading the forums for a few weeks before I registered, and I frequently stumble on your posts. I want to thank you for all the knowledge you bestow upon others. It’s people like you that make the world go 'round.
I agree with Clint entirely, but to add one other, wider point: to me, that spike is not even that big, particularly compared with some of the recent choppy days. I realize that you were not trading it, but for me this also highlights the need to be careful with the placing of Stops. I always seek to protect my Stop behind an area of S&R, in this case that probably would have been behind the 50 or 200 ema (depending on timeframe), in which case the Stop would not have been hit by the spike. I am not saying that to sound smug (I wasn’t trading it in any case) but simply to illustrate the point as I think that it is really important.
Generally, areas of S&R are there for a reason, it is a psychological level through which the market has previously been reluctant to push price. So even with a spike following a news story, this is still likely to be an area where price could stall and come back on track. A Stop placed, say, a few pips off the low of the previous bar can work well on end of day trading (although I would still want extra protection), but for intraday it is good to have other reasons to have a Stop in a given place. In this case, tucking it behind an ema would have prevented any trade stopping out, then the previous uptrend continued. Correct placement of Stops is a major way a trader can improve their win/loss ratio - giving a trade room to breathe is as important as spotting a good setup in the first place.
Anyway, slightly off point, but I thought as your principal question had been answered there was some value in my throwing in this extra observation.