Economic Reports ...

[flyer]

Hi everyone:

A few weeks back I posted a thread here on the board titled "Setting Goals". Once again, I appreciate all who responded and respect the views and opinions which were conveyed.

I am still in "Demo mode", operating on a part-time basis when not at work, and not trading equities on the U.S. stock markets. Thus far this month, I've have earned a net profit of $1,654.00 USD, which I feel is quite commendable, considering the small amount of time which I have had available to trade and study this market.

I am still using the Trade Station platform from RefcoFX, which by the way seems great. You are given $50,000 in "demo cash" when the demo account is initiated. Out of this $50,000, I have only held a maximum of $3,000 used margin, attempting to keep my risk as low as possible. I used stops and limits, structured a plan of attack, and stuck with it. In the end, my results were favorable.

Over the past six months or so I've been watching and studying the FOREX market. I've noticed a trend in the USD/XXX currency pairs. Generally speaking, most of the U.S. economic reports are released at either 08:30, 10:00, or 14:15 ET. Trading activity becomes very volatile during these times when reports are released, and in many cases, I've seen swings of 50, sometimes even 100 PIPS.

I have yet to focus just on these methods while trading, but it would seem to me, that a great deal of profit could be earned trading within these swings and spikes, presumably if you properly understand the news and how it could potentially impact the currency.

I'm interested in hearing your thoughts and views on this methodology, the goods, and bads.

Thanks very much in advance!

flyer

[eternalfuture]

Flyer,

I think that could work. But you will have to know the potential impact of the economic reports on the market. How the market reacts to these reports not necessarily easy to foresee.

Good reports not always lead to positive reactions, while bad reports not necessarily create negative reactions.

It's not just about the good and the bad of the reports. It's also about how is the mood of the market at that moment.

Usually, according to my observations, good reports produce positive reactions for only temporary during bad market mood (bad market sentiment), and the following reactions could be negative. Vice versa.

Of course, you can use these kind of situations for quick trade. But, there's still a problem. People tend to interpret the data first, then getting ready to jump in. By the moment they're in, the market turned tail.

However, I believe such strategy could prevail. You just gonna need to take quick actions.

But then again, there's an issue of stop loss. How are you going to set them up right after you enter the trade?

Anyhow, it's just a thought.

Cheers

[flyer]

You're correct in your assertion that the market doesn't always react positively, even when positive news is released. But generally speaking, if the reports are favorable, the currency will climb in price, and if the news is negative, the currency will decline in price. There's also the trend of severe volatility just before, and just after the reports are released.

Clearly, this overall volatility stems from an investor's prediction of a certain result in market reaction, then either buying (or selling) the currency pair refecting their personal expectations and sentiment. As you mentioned, it's quite difficult to predict market reaction to a set of economic reports, particularly if market sentiment is poor at the time. Typically, it's an overal "mixed" reaction, where many investors are buying, and many are at selling at the same time.

Given the above scenario however, it would seem likely that an FX investor could potentially profit both ways, trading whatever trend existed at that time. I've noticed a general consensus in optimistic predictions of reports, as many times the currency will advance slightly in price before the reports are released, almost assuming that it will be favorable, and have an inherent positive impact on the currency.

***For example:***

At 08:30 AM ET on 09/26/2003, the U.S. GDP Final report was released. Many were expecting a 3.1% consensus, yet the report came in better than expected at 3.3%. If you examine the charting of the EUR/USD, it's evident that the EURO advanced in value in the minutes prior to the release, then dropped significantly after the release.

This advance prior to the report's release was around 30 PIPS. However, the drop after the release was around 60 PIPS, as it was favorable to the USD's value. Being the optimistic person that I am, I see (2) clear opportunities to make money in this situation:

1) When this upward trend is noticed in advance of the report's release, a trader can open a long position in the EUR/USD, only looking for an 8-15 PIP profit.

2) Then, at 08:30, when the actual raw numbers are released, another trend begins, which clearly is much more defined. As the numbers are better than expected for the USD, a short position could have been initiated against the EUR, thus expecting it to drop in value. This is where one could be a bit less conservative on your profits, and possibly look for 20, even up to 40 PIPS in profit.

Now, understandably, this is just one example which may not reflect the outcomes of other similar situations, however, this seems to be the typical market reaction to the release of economic reports.

Any other comments or suggestions are welcomed.

flyer

[eternalfuture]

Flyer, so far you have been talking about potential profits.
Have you think about how you should set the stop/loss?

Looking at your example, you aim for 8-15 pips, but what of the risk? Have you calculated them too?

As for market expectations, the market tends to jump into conclusions only to change their minds as fast as the blink of an eye.

When the market start to build up their sentiment on certain economic reports is not limited to just a few hours before the release, but instead, it could take place days or even weeks before the release (an example is the central banks' rate decisions).

Sometimes, it's not about the ACTUAL vs EXPECTED economic reports result, that matters, but also PREVIOUS reports.
An economy cannot be judged from a single economic reports, but rather a series of previous reports.

I wonder, do you use TA in your trades?

If you do, you can combine fundamental and technical analysis to analyse the market.

Cheers!