Trading news and sentiment
This thread is dedicated to trading news and sentiment across all major and some exotic pairs but also includes some commodities. This method of trading is not for everyone and requires more effort than technical merhods because it involves researching macro and applying that knowledge to economic and political news. Due to the speed at which trades are executed it is impossible to post trades before hand and to be honest, I am not here to provide signals or prove anything (others are welcome to try if they feel they can handle placing a trade and posting at the same time).
The type of post, when I am able to do it, will include a breakdown of the trades I have taken or what I am looking to potentially trade on the day.
Everyone is welcome to post as long as it is friendly and keep to the thread topic. I don't use charts personally but people are welcome to post theirs although it needs to be in context to the general theme of the thread.
Some general rules
1) trade related posts must include reasoning behind the trades and this includes reference to the news item that has moved price.
2) every trade must be based of fundamentals first before technicals come into play. I have no problem with poeple mixing technicals and fundamentals but you can't post trades where the technicals are your primary entry followed by confirmation with fundamentals
3) banter is allowed but coming in here and trying to mock or interrupt the thread won't be acceptable
I hope some of you struggling technical traders get some insight as to how this method of trading works, and that you can incorporate some of it into your trading without being an economist.
As to me, I can't be on here all the time and that's by choice. This method of trading gives a lot more time to be away from the screens but there is some regular research needed. I am not sure at this point how long I will be here contributing but while I am I intend to share and hopefully save a few traders from being stuck in an endless cycle of consistently losing.
To kick things off here is some information to digest. You have scheduled and unscheduled news and together they make for a very profitable source of trading. You can however only trade scheduled news and still be profitable.
The research begins with central banks as they hold the keys to monetary policy. They are mandated to keep inflation in check and the banking system stable. Governments employ fiscal policy to manage growth and stability. Together they control the long term trends in the fx market.
Central banks use forward guidance to prevent shocking markets as they adjust policy. You need to focus on their statements and speaches to gauge their concerns, areas of interest, and their forecasts. Withing their communication is forward guidance about the future direction of policy.
The only economic releases you should be concerned about are tier 1 and tier 2 data points. Tier 1 offer the best opportunity while tier 2 offers reduced opportunity. If an economic indicator is on the central banks watch list or directly related to it you have a major data piece that can offer opportunity.
What you are generally looking for with scheduled releases are deviations in expectations which happen very often. When this happens you can trade the opportunity with another currency with an opposite sentiment. It is always best to trade in the direction of the longer term trend which you establish by central bank policy but you can also trade against it if the opportunity is there. Pairs don't move in a straight line so don't be afraid to go against the long term trend in the short term.
This is short term trading with trades lasting minutes to a couple of hours. I am always flat at night unless I am looking to position for a bigger move but this doesn't happen often.
So you trade as soon as the news are released?
It's a combination of time and having experienced the trolls on other threads that's put me off. If you are interested though I am happy to share some details so will add some one off content to show how I do things.
I'm interested too
Right then, here is a rundown
My trading ideas are rooted in research I do around fundamentals and anything that drives sentiment. It could be economic data, central bank policy including statements, press conferences, and speeches, political events including tweets from trump, political issues like brexit or trade wars or general conflict, and finally commodities. To give you an idea, last night I reviewed the previous ecb statement and latest economic indicators around growth, employment, inflation, and so forth. This morning I watched the previous press conference to freshen my view of their forecasts and intentions. I spend time catching up on current sentiment via news feeds and prepped what I was going to trade. My expectations were for a softer tone and it turned in my favour and managed to bag about 22 pips from shorting eurcad. I chose that pair because yesterday boc raised rates and their forward guidance showed potential for faster hikes. Similarly, I traded the Boc release but through research I decided to position myself before the decision and scaled in as short term sentiment was driving price against the overall fundamentals. It gave me better entries and when the fundamentals reasserted, and they always do, the trade gave me almost 10 percent gain.
So I do both swing trades and session trades off the back of a catalyst. I only use charts to manage trades and don't even look at them otherwise. I am always planning 2 weeks ahead using the economic calendar as my schedule. I don't trade every day and I don't trade every news release. It all depends on the importance of the release and how it might affect central bank policy.
On news events I will enter at market as soon as it is clear there is an opportunity. I don't base an opportunity of price but the actual data in the news. I have a fairly complex money management process that involves time, risk events, sentiment, price action, and my near term outlook.
I spend about 2.hours a day researching after trading hours and during the course of the day I have alerts on news feeds if anything pops up unscheduled, I can action it. Otherwise I just stick to the economic calendar as my schedule and it provides me with more than enough opportunity throughout the month.
Analysis isn't extreme. It's a combination of closely following central banks coupled with economic data and sentiment. I do employ market correlation and I do use commodities as triggers for trades like oil to cad or gold to aus but those economies have other factors like Chinas affect on aus and USA on cad. Those are all areas of additional opportunity.
For the most part I follow the following economies
Occasionally south Africa.
One final note is risk on and risk off. I trade both but risk off cam be somewhat tricky as it depends on sentiment for the safe haven flow. Normally its yen and swissy with gold but it can also be dollar in which case gold sells off and the others will also be weaker.
If any of this doesn't make sense then apologies as I have battled insomnia for the last 2 days and I am feeling wrecked at the moment. If there are any mistakes of sentences that make absolutely no sense I'll fix them when I am not feeling like a hangover.
bring it on and stop wasting time arguing with others because this is the internet and you dont know what loser is behind the computer
1) Economic data releases, who's fastest at releasing?
Paid for are obviously the fastest but you can get by using this strategy. Register for notifications on tradingeconomics.com for notifications you will get economic releases popping up no matter what you have open (a small box with the headline). Forexlive also does a fine job and generally a very good news feed to have. My fxbook also does fast releases and has a nice countdown counter like Reuters Eikon. I often trade off tradingeconomics.com along with forexlive and ransquawk, which I am currently debating to be dropped. The other sources have such good content that it just feels like a waste. But to be fair, they do a great job of showing a differential fed statement with the previous. This highlights the word changes. If you are interested in fed talk you should get a book titled, how the fed moves markets central bank analysis for the Modern era
But where ransquawk go wrong is they don't do it for all the major central bank statements. So it's only real benefit is the fed differential.
2) News feeds, who's the best?
Forexlive is better than ransquawk in my opinion. Often the ransquawk feed is quiet while forexlive continues to provide commentary by analysts using premium news terminals like bloomberg. To put it into perspective, I rarely open it up these days.
Actionforex is another brilliant source. While forexlive does brief summary, Actionforex provides an aggregated feed from other analysts and also investment banks. Its the sort of feed you read at the end of the day.
Eikon, I use it for really important data releases where I want to be as fast as possible. These are the major indicators like inflation, Gdp, then depending on the country, will have high profile data points. I mainly use it for research across markets and some really nice tools it offers.
Twitter, I can't fault this as a source of opportunity. You can subscribe to almost anyone and a feed containing trump, news outlets, you can even get tradingeconomics.com, and finally there are some experienced traders who often provide invaluable news info that you didn't find or catch on any other feed. Be warned though your feed can become cluttered by some of your followers likes so choose yours carefully and lean on the light side (experimentation is the best approach)
Great mention of Actionforex and the notifications feature on tradingeconomics, I didn't know of those. Thanks for that.
I must say Eikon (Metastock Xenith) is the best of them all (sort of a must-have), from experience.
Prepping for trades
While there is a good amount of research and thought required, you don't have an economics degree. Start with central banks where you will be able to gauge where an economy is in the business cycle and if there are any additional special measures in play that can alter the economic outlook and delay the business cycle. A central bank controls money supply and the cost of money to affect economic growth. They use things like reserve ratios to affect bank lending, rates at which banks can lend, market operations to affect rates, short term rates, QE, and a few others.
You should understand these tools and what they do so that when you digest central bank language, you understand what is being discussed and this helps you understand forward guidance. Central bank communication is a policy in itself, it allows the bank to inform markets of their intentions but their language is subtle and takes a while to get the hang of. It is critical to understand the backdrop first as this ultimately sets the scene for forward guidance.
Starting with the central bank gives you a medium term outlook on an economy and it can be used as a source for swing trades. Following this you need to use central bank communication to understand what data points they are currently focusing on. Depending on the state of the economy, this could be employment, inflation, productivity, etc. Reading and listening to their communication will give you this information. For example, the fed are not concerned about employment so nfp isn't really a mover these days.
Next step is to digest the economic data. Beginning with broad indicators like employment, growth, inflation, trade, deficit. Then isolate down to the indicators identified through central bank analysis. Keep notes as it helps and allows you to fast track before trades.
Next step which is a weekly routine and that is looking to the week or 2 ahead. This gives you a scheduled to work off and is a notification of major upcoming events. If a central bank is due in the week you can be sure that trading in that currency will be limited to unscheduled events. Planing is so important and is used to prep for trades days in advanced.
Daily routine involves catching up the the previous session news, market correlations, and when put into context with the schedule, gives you a good sentiment gauge. Look at stock market indices, commodities, and bonds to gauge risk sentiment. Depending on it being risk on or off you will have different opportunities. Risk on money moves into risky assets, risk off money moves into safe havens. Bond yeilds rising strengthens a currency while negatively affecting stock markets.
Before a scheduled event you should take at least 10 minutes to catch up on sentiment and refresh your knowledge. The objective is pairing strong with weak so use sentiment to gauge strongest and weakest based on news sentiment (not charts). Have in mind a pairing if the scheduled release is a positive or negative deviation. The greater the deviation from expectations, the greater the opportunity especial if the data point is in the central banks regular communication. If the data is as expected there is no trade.
Next up will be managing trades
Some very good content you are posting, great job. I will follow it and chip in with my views if that's fine, whenever I have time.
I have seen from some of your other posts that you trade the 1 hour time frame. Do you trade other time frames? I was considering using fundamental analysis at one time, but it seemed to me it was best suited for long time frames (e.g. 4 hours and higher), and I want to trade shorter time frames. Do you agree?
I bought a book that helped me to understand some of the basics of fundamental analysis, "A Three Dimensional Approach to Forex Trading" by Anna Coulling. One of the dimensional approaches is fundamental analysis.
Thought I might chime in if I may.
Trading particularly forex can be very complex.
Personally, I prefer the indexes and bonds nowadays
Regarding currencies, doing the research finding those edges that get missed can really put you ahead of the game
If Ecotrader is doing 2 hours of reading and research a day, he is miles ahead of most of most traders.
I only look at charts when I have entered a trade to manage it. The 1 hour charts initially gives me a picture of significant levels after which I go down to the five minute chart. The 5 minute is a good sample size to show me how price is interacting with levels as well as time. With swing trades, I only manage from the hourly chart.
Trading fundamentals off a 4 hour only makes sense to swing trading. I make most of my trades off the back of news and a 4 hour chart to manage the trade doesn't provide me a time element I need to manage them. A news trade can last anything from a few seconds to a few hours depending on the situation. Again more on that in the next post.
You can successfully trade news both short term and swing trading.
Spending that time reading is key to my edge as you seem to relate to. Not many retail traders will understand this let alone identify it as an edge.
For the sake of helping others, knowledge is power. In a fast paced market around news you can't sit there and think about what you need to do. This is where the planning comes into its own and the research (2 hours a day reading) gives you the knowledge to know when an opportunity is up for grabs. How does it do this. Well to understand it consider this. By researching you are aggregating information and relating it to sentiment you observe in the market. This gives you a good idea what information is important to the market. Information isn't equal. You have primary data and anecdotal data. Primary data comes from the central bank, economic data, and other official sources like politicians. Anecdotes comes from analyst reports including forecasts and opinions.
Never trade off anecdotal reports. Aggregate these and then you will have a good idea of market expectations. If the data conforms to these you generally won't get much of a reaction. What you are looking for is surprises and there are plenty of these to go around. If inflation is expected to be 1.2% and anecdotal reports are more or less in aggregate agreement, then if the actual release is 1.5% you now have a guaranteed opportunity. When I say as I have many times that I don't trade probability, this is what I refer to. A 0.3% surprise to the upside will perk up central bankers and market expectations of a rate raise. Its not a probability its a certainty. The conviction you will get from doing this will make anything you have ever felt from technical trading look like a joke. Experience this a few times and you will relate to what I mean by not trading probabilities. Instead it's trading an event where price will need to adjust to changed expectations. A very different type of trading and ultimately the reason I am able to maintain an 80% hit rate.
Sorry Fader this long reply wasn't all intended for you but you raised a very important point that I felt needed explaining.
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