The News to Use Lose or Abuse

[faure]

I thought it would be interesting to try look at price action in relation to news items. The secret in getting an edge is finding something that is correlated (whether negatively or positively) to the market. I like to think that price news move inter-dependently of each other so there has to be a correlation.

Often do we get an economic number above consensus but the euro actually loses ground. Clearly the sentiment is negative in a situation like this so why not trade it. Take the last NFP for example on March 10th - the consensus was at 200k we got a higher number of 243k although last moth's number was revised lower 193k to 170k the number still something the eurusd bears could do something with. Except they didn't after a short drop the euro ended the day near pre-NFP levels at 1915. Seven days later the euro reached 2200.

The Market Wizards series is full of examples of traders using discrepancies between news price action. Most notably Ry McKay who gives a number of examples of how he trades the news in relation to price. Street Smarts also has a section devoted to news trading.

In a bull market bad news tends to get ignored good news hyped vice versa.

[faure]

After Bernanke's speech the market completely ignoring the hawkish comments by Trichet Issing on Tuesday nevermind the stonger consumer spending in France the euro tanked a 150 pips 2100 before Friday's weaker housing stats. A bounce on good news is not uncommon in a bear market so unless something happens on Tuesday the dollar is still king.

Looking ahead the only important news due to come out is the NZD trade balance JPY services prices tonight.

The NZDUSD has been in freefall for the last few weeks a number worse than the -300m expected might already be priced in. A rally on a below consensus number would be the cue to start getting long again.

Just my opinion. Any comments are welcome.

[Gamma_Jammer]

Originally Posted by faure

I thought it would be interesting to try look at price action in relation to news items. The secret in getting an edge is finding something that is correlated (whether negatively or positively) to the market. I like to think that price news move inter-dependently of each other so there has to be a correlation.

Often do we get an economic number above consensus but the euro actually loses ground. Clearly the sentiment is negative in a situation like this so why not trade it. Take the last NFP for example on March 10th - the consensus was at 200k we got a higher number of 243k although last moth's number was revised lower 193k to 170k the number still something the eurusd bears could do something with. Except they didn't after a short drop the euro ended the day near pre-NFP levels at 1915. Seven days later the euro reached 2200.

The Market Wizards series is full of examples of traders using discrepancies between news price action. Most notably Ry McKay who gives a number of examples of how he trades the news in relation to price. Street Smarts also has a section devoted to news trading.

In a bull market bad news tends to get ignored good news hyped vice versa.

As I've said many times the problem with this is that the story is always more detailed than you realise. Headline number is rarely the sole driver of price. If it was that simple it would be easy we'd all be milli by lunchtime

GJ

[faure]

Just because it's complicated doesn't mean it isn't worth the time. The fact that it requires study effort is the very reason it might be viable. Anyway I'm not saying the headline number is the sole driver of price - that's why price doesn't always go the "logical route". How price responds to a part of the big puzzle might give some clues as to which side has the upper h. Kinda like playing poker with only the flop showing.

Regards

[Gamma_Jammer]

Originally Posted by faure

Just because it's complicated doesn't mean it isn't worth the time. The fact that it requires study effort is the very reason it might be viable. Anyway I'm not saying the headline number is the sole driver of price - that's why price doesn't always go the "logical route". How price responds to a part of the big puzzle might give some clues as to which side has the upper h. Kinda like playing poker with only the flop showing.

Regards

Agree totally however what I meant is that most new traders ( I'm talking about retail traders here) don't want to spend that sort of time understing the way this stuff works. You can see it on boards such as moneytec etc every day. Questions like "Can you point me to a good site which will tell me all I need to know about trading the news". People want short answers that they can write on their metaphorical cue cards. They don't want to wade through pages pages of research just to get a feel for where the balance of opinion lies only to have to do it again tomorrow.

[faure]

Yesterday's NZD data was pretty mixed the market ended up being pretty quiet. The real action was in the JPY ps which really looked strong after the data realease which wasn't anything spectacular.

During data releases there are a lot of people who show their hs by playing into the volume putting on size because there will be more people to take the other side.

Right now I'm looking to pile into shorts against the Yen crosses especially EURJPY.

[faure]

What's really interesting about This morning's JPY rally is that I think a lot of people are postioning themselves for the duluge of data coming out during the course of this week.

What's even stranger is the fall of the CADJPY p despite the firmer oil price.