Trading the news - what are the odds?

Trading Discussion News and Economy
1

Let’s see, many experienced FOREX traders will warn you to stay clear during a volatile economic news report - “no telling where the market will go, it may move so fast in the wrong direction so as to cause a big loss.”

This is very true.

But still, traders will enter the market during these high risk news reports - and some are even winners. Why?

Like professional card players, these traders understand the odds based upon previous
results.

It is common knowledge that the currency market is a huge market, thousands and thousands of traders, maybe even millions venture into the market for the news reports.

These traders depend, for the most part, upon so called “expert” forecasts of the actual report. The “forecast” may be in favor of that countries currency, or not. If it comes out as “forecast” chances are a currency pair will move accordingly, or not.

But suppose the “actual” report is contrary to the “forecast” by a good sized margin, then traders will move to take advantage of the situation.

For example, Australia’s Employment Change and Unemployment Rate released last Wednesday, the 8th of June, 2011.

The “forecast” for the Employment Change was 25.6K, up from last months “actual” results of a -22.1K, a big change is projected.

The “forecast” for the Unemployment rate was the same as last months report at 4.9%.

Well, if you are one of those traders who trade the news reports, you know that much of the time “expert” economists may come up a little short or long with their predictions.

In this case, the economists were a little short with their “forecast” of the employment change by about 17.8 K (they were right on the money with the Unemployment Rate) bad for the economy.

The market did move against the Australian dollar a bunch, in spite of a good Unemployment rate.

Upon the report release, the currency pair AUD/JPY moved down for 17 minutes about 73 PIPS - right direction.

The currency pair AUD/NZD moved down for 6 minutes about 86 PIPS- right direction

The currency pair AUD/USD moved down for 39 minutes about 90 PIPS- right direction

And, the currency pair EUR/AUD moved up for 39 minutes about 115 PIPS- right direction

The odds were, with a bad report and the report being outside the “forecast” far enough, the Australian dollar would suffer in the short term - not every time will that happen of course.

But the average trader will try to reduce his losses if he had depended upon that forecast and had traded according to the “forecast“. He may have been buying the Australian dollar - a loser in this case.

Knowing this, the odds could be in your favor.

2

In my very young trading career, I have noticed this much - when it comes to 5m charts, let the first two candles after news play out, as nothing but chaos and nonsensical trades will be happening. Then see which way the sentiment it going. It should always go the right way, and in a major way. I did this after the US Non-Farm Payroll news disaster and made an easy 105 pips. But you have to let that initial melee play out. Then it’s easy money, or so it has been so far.

The real mistake IMO is to already have a position before the news actually takes place. No need for that.

3

No such thing as easy money in forex … you’ve been lucky, same as going in a casino and picking red correctly. You might then pick black correctly … but you will get stung and lose it all and more “playing” forex like this.

4

I’m being loose with the language of course. When I trade after news, I keep my S/L tight, just in case I was wrong for whatever reason. The trend should go the way I expect after the chaos settles. If it does not, I exit immediately and wait for the next train to come. IMO you only lose your shirt if you stick to your hunches and keep losing pips. I realize I know next to nothing, and exit as soon as I see that short-term I’m wrong. Keeping the risk low and the rewards big as best I can.

Famous last words? Maybe, but I’m enjoying the ride.

5

Most often when dealing with a very volatile news release, knowing your broker spread policy is very important.

Back to the Australian Employment Change and Unemployment rate. The broker I use will increase their spread anywhere from 45 seconds prior to a news release to 5 seconds prior to the news release. It may not go back to a normal level until after a minute or 2 post news release.
At which time, if the situation is correct, I will enter a trade.

This is how I view a correct situation:

The “actual” report is far enough outside the “forecast” to move the market.
The market is moving in the direction expected.
The broker spread is at or near normal.

There is another condition, but it is not related to this particular news release.

I agree a tight “stop loss” is important - so, I find myself waiting until that high broker spread has returned to normal levels before entering a trade. In the past I have been stopped out the moment I entered the trade because my stop loss was inside the broker spread.

Even in chaos, a pattern will eventually emerge, allowing for the determination of odds.
The odds may be very slim in some situations, but understanding them may give you an advantage, however slight.

Getting to a pattern developed out of chaos takes years of monitoring. But worth the trouble.

6

Thanks for the heads up on the spread. Never even bothered to look at it.

So far, the times I’ve traded after big news, a 5m candle has gone bonkers both ways before stabilizing and moving in the expected direction. Not sure why it’s always two – a bullish and a bearish of almost equal length, but that’s what I’ve seen so far.

7

Coming up next month is one of the better European news releases I have found.
The German Factory Orders report, which is scheduled for release on Wednesday, July 6th, 2011 at 6:00 AM ET. (be aware, schedules have been known to change)

A big problem is finding out which currency pair to trade with a given news release - not all currency pairs act the same way.

During the period of February of 2010 until February 2011, I traded 7 of those months, a total of 12 trades. Some winners - 8 times, some losers - 4 times.

The 2 currency pairs that I traded were the EUR/USD 4 times and EUR/JPY 3 times.

Five of those months that were traded - the currency pair EUR/JPY was the best pair to trade. Only once did the currency pair EUR/USD have a better showing and only once did the currency pair EUR/CHF have the best showing.

There is a big problem with EUR/CHF - my broker spread is larger than the other 2 currency pairs.

Odds are, if next months report comes out by 1.3% or more than the “forecast”, the EUR/JPY has the best chance of being traded a winner. The greater the difference, the better the trade.

This news report has not in the past, when there was enough difference between “actual” and “forecast”, had strong fluctuation the first couple of minutes.

It should be a “scalp” trade since there is a strong possibility of a retrace within 6 to 8 minutes.

Usually my broker spread returns to normal the 2nd minute, making that a good opportunity to enter a trade if the market is moving in the right direction.

8

One of my favorite US news reports is being released tomorrow, Tuesday, the 21st of June, 2011 - the Existing Home Sales report.

I have uploaded a video on You Tube, of a trade several months ago. I have traded this report 7 times with 11 trades in the past, 8 winners.

The video shows how I set up and traded on Monday, the 21st of March, 2011.

My You Tube channel is “gypsytu”

I was counting upon the odds for 2 winning trades which worked out as planned.

9

Don’t let others who don’t want to attempt to understand the logics behind what you’re trying to do deter you [B]ssnvet[/B]. Trading the news is definitely a viable way to take pips from the market if you know what you’re doing. Good luck and keep up the good work!

Regards,
xXTrizzleXx

10

Thank you for the encouragement, I have been following important news reports for about 4 years now and I believe in the “odds” - good information for risk takers. By the way, do you trade the news reports? If so, what are your favorite reports.

Regards,
ssnvet

11

The US Existing Home Sales on Tuesday the 21st of June, 2011 came off without much market influence. The “actual” report came out lower than the “forecast” and revised “forecast”, but was not low enough to move the market much.

The “actual” came out 20K lower than the “forecast” and 19K lower than the revised “forecast”, which was bad for the US economy.

Only 1 currency pair moved enough to allow for a profitable “scalp” if trades were entered. I did not venture a trade.

The US Dollar against the Canadian Dollar moved down for about 26 minutes a total of 33 PIPS.

12

The United States Conference Board, Inc., releases a news report monthly which at times has been a good report to trade. Tomorrow, Tuesday the 28th of June 2011, at 10:00 AM ET this months report is scheduled for release.

I have set up to trade this report if a certain condition prevails, the “forecast” is set at 61.1, I am looking for a “actual” report release of 5.0 or more.

In the past I have executed 9 trades during 4 releases - all were wins except 1.

13

I think the issue is that the volatility during news can move candles in extreme directions of buy/sell. So you will need a big stop loss to absorb any sudden movement of pips

14

News based trading may give Profit some time.But most of the time it will take off your Profits.Better avoid and wait for the right time to trade.Big fishes trade at the time of News, small retail traders trading at the time is sucidal.

15

Actually fundamental analysis of the news is already discounted in the market. Market makers are killing those poor stops !

16

Volatility can be a problem during certain important economic news releases - that is why my stop loss is tight, usually no more than 15 PIPS. Waiting until the market moves have subsided enough to see the markets decision, one or 2 minutes into the news release, is when I will make the commitment to trade or not.

I keep my stop loss tight to limit my losses should the market move against my prediction.

17

Is the speculation of “technical” analysis much different from “fundamental” analysis? Both are depending upon educated speculation - are they not?

There are so many traders experienced at “technical” analysis with so many options open to them for taking advantage of lesser experienced traders - the “fundamental” economic news report trader, I feel, has a better advantage.

I could be wrong! That’s just me!

18

I posted a preview of the US Conference Board Confidence report on this forum on Monday 06-27-11.

Well, not much happened, there was not enough difference between the “actual” report and the “forecast” to surprise the market to volatility.

19

Great Britain, at times, will release an economic news report which moves the market.

Tomorrow, Friday the 1st of July, 2011, the UK’s Markit Economics will release its monthly report of the Manufacturing Purchasing Managers Index. This report, if off “forecast” far enough will move the FOREX Market in a way that some PIPS can be “scalped”, usually the GBP/USD, sometimes the GBP/CHF.

Of the last 16 releases, I have traded 5 times out of 4 releases, so it would seem that the economists are not off very often with their “forecast”.

I only suffered one loss of those 5 trades - what are the odds?

20

So where do your guys get your information for news trading? Is babypips’ calender enough, does this calender get updated right away, so you can compare actual to forecasts, or do you guys use other sources?

Thanks.