Why trying to get in before the spike will never work

I always used to think that the spike that follows news releases was caused by lots of new orders coming in to the banks so the price moves. If that was true then as long as you were faster than everyone else, you could get in at the bottom/top of a spike and profit from it. That's what a lot of these news trading signal providers want you to believe. I recently found out that this is total BS. The spike is caused because the banks themselves (e.g. Bear Stearns, JP Morgan, Deutsche Bank) automatically adjust their prices in response to the news. It's all done without human intervention and is instantaneous - there is no way of getting in before the spike if your orders are going straight to banks (as with for example EFX and Currenex). If you're with a market maker like Oanda or FXCM then you can only profit from taking advantage of the delay between their prices and bank prices - which understandly they try to stop you doing. Of course there are still ways of profiting from news releases - fade the spike or trade the pullback for example - but getting in before the spike as these silly and expensive news signal providers would have you believe is not an option.

i am newbie in news trading, and i several times enter the market before the spike, and profit. but i guess you are right, and i am wrong to enter before the spike, it is too dangerous and i thank God that i am still profit . i will be more patient next time, and enter after the spike.

the first spike and the whipsaws are the most important things we should be aware in news trading. i wonder, can we avoid whipsaws? is there any spesific economic reports that are " whipsaws free"?

thanks

It's actually a couple of things. Yes there is some price adjustment, but most banks, hedge funds etc trade with automated systems that are programmed to enter trades based on criterias that are set up well in advance. Essentially you're right though-u can't "beat" the spike.

There still are many reports you can trade successfully. Take the last NFP-there was plenty of time to listen to BB radio, get all the numbers and analysis and have a very nice trade. I got in almost 4 minutes after the numbers came out and still caught almost 50 pips.

Getting in before the spike? The only way to do that is to take a position prior to the trade and guess right! Newstrading is still very much alive and always will be. Not every report is good, but if you're disciplined and tend to trade only when there is a substantial difference between the consensus and the actual, you can do well.

Let's see what happens with today's numbers...the only way a really good trade will occur is if the core PPI and retail sales are off consensus and indicate the same thing. If they conflict or come out at consensus...likely you won't have a good trade.

Hello Newstrader,

First let me preface by saying that I enjoy your market analysis very much. I quite oftern read it. But I am afraid that I must tell you that you are incorrect. You can do it, I have done it. NOTOUCH, you specifaically mentioned that you cannot do it with EFX. Since we understand that EFX and MB are for practical use, the same. I must inform you that I have "beat the spike" using MB among others. I hear your argument but the realitiy is it is just not so. You can get filled in the time between the actual realtime announcement and the markets reaction. As you know better than anyone, that still does not gaurentee profit. However, With the right single data release with a clear implication it is absolutely the most profit potential you can get.

NewstraderFX when I was talking about the banks I meant the interbank market makers. They are the counterparty to your trade (unless you trade with a bucket shop) and they are the ones who automatically adjust prices. Otherwise, I agree with everything you say. FXopportunist, EFX/MBFX match one customer's orders againt another so if you do get filled before the spike then another customer will be on the other side of the trade, not a bank. That's what's meant by an ECN system.

Of course you can still profit after the initial spike. Today's UK CPI for example, there was a 30 pip spike then a tiny retracement then another big move down. It's the second move down where the good traders would be making the profits.

I am very glad for your post notouch and I as much as anyone can appreciate your journey of learning but you have some more learning to do on exactly what an ECN is. There is a great deal of info here on FF including a an article and subsequent thread that I wrote/started.

http://www.forexfactory.com/forexfor...ead.php?t=8046

FXopportunist, thanks for your kind (if somewhat patronising) response but I know very well what an ECN is. I think you may be getting confused between straight through processing (STP) which sends a customer's order directly to a bank and an ECN which is an Electronic Communications Network which, among other things, matches the orders of different customers using the ECN. EFX uses both STP and ECN but I believe it is the ECN component which allows your orders to be filled before the spike.

no touch,
I offered you my experience and knowledge. Yes it was somewhat patronizing. It was not for the intent of offending you though but I fully understand how it might.

My post was just as much for anyone else who might read this thread. I spent many many hours of reading and research so that all could learn what I learned much faster and easier. I offer to all whatever I learn and try not to speak out of my area of knowledge without making note of it when I am.

Good trading to all
FXO

The spike on the PPI/retail sales announcement today on the OANDA platform occurred between 8.30.00 and 8.30.05. I don't see how you could receive, digest and trade the news figures within that time and hence beat the spike.

Hello Castlemain

You are assuming that the data comes out at precisely 8:30. That is just not the case. If you look back at historical charts you will find that sometimes the news is out and spike has already printed 8:29 and 20 seconds.
I encourage all would be news traders to look around search and read both here at FF and the net. There is lots of info out there so you can cut through the supposes and get to the facts.

There are strict rules about the release of economic data so it should always be out at exactly the publicised time. Sometimes the market starts moving early because of rumours and stops being triggered but the data should always be released at exactly the publicised time.

Castlemain it's not strictly necessary for a trader to "receive, digest and trade the news figures". This can be automated in Excel using Bloomberg or Reuters and a broker's API. You would never beat the banks this way though because they've already adjusted their prices before your order arrives. The only way of beating the spike would be through an ECN or by exploiting a bucket shop's slow system.

Hello notouch,

I totally get where you are coming from on your arguments but what should be and what is are just not the same. I am offering you real world actual experience. Not what I have heard or what I think make sense or even what a guy told me. REAL experience. I know form experience that people don't listen and have to learn their way so I will make this my last post on this topic. I have shared my experience, that is all I can do.

I wish you success,

FXO

The US and UK have very strict news lock in systems. Accredited news organisations are allowed into the room, their laptops and telephones are on but disconnected, they're then briefed by a statistician and at exactly 0830 or whenever they are allowed to transmit the news. The Fed on the other hand releases its statement early on its website. Just because the price is moving doesn't mean the data has been released early. I get the data real time from Reuters and I've never seen an early release from the UK or US. Other countries are not as strict.

The easiest way to explain that trading the spike is not viable in the real world is to do a lot of such trades where you beat the spike by getting in just before the spike happens but after the news is released. Then you take this great profitable record of yours and go and try and find a job as "trader" with any bank in the world. They will look at your results and wonder how you were able to enter before the spike but after the news. They will see that you exploit the slowness of the bucket shop reacting to the news. They will give you your beautiful report and send you on your way with a smile...Now if that same profitable report was generated entering after the spike they will probably offer you a junior position for a start...Just my experience

I am a bank prop trader and we smile at the guys trying to beat the spike as there is NO prices inbetween the before news and after news prices...just huge slippage for orders with banks, while the buckets do allow you entry but they certainly carry that trade for themselves and do not off-set it in the market (except maybe with another bucket).

As an example before news, gbp is 26/28 you have an order to sell at 46 the news comes out and the first quote is 88/90 now one of 2 things will happen 1: you get filled at 88 or 2: some other trader had an order to buy somewhere between 46 and 88 and you get filled at her buy say she had a buy at 58 you will be given at 58 and also see slippage...you will therefore be filled at the first quote available resulting in the institution you trade with NOT taking the position on their book...of course it might happen that the institution is building a position and they take the position on their book with minimal slippage to you...The FX market is however very liquid so you will rarely see this large slippage in my example as there are a great amount of orders between your 46 and the first tick at 88.

Trading the spike as news comes out is not viable and untradeable except with a bucketshop...Yes you might sometimes get in in time and sometimes not but you will always be at the mercy of the bucketshop allowing you to be executed or not. As soon as they start to see they are losing money the will change their ways, they protect themselves by using larger spreads at news times and "market has moved" messages. You will rarely get a "market has moved" message if you trade in the opposite direction to the spike as there will be money in it for them to allow you to enter in the "wrong" direction to the spike...which of course is logical as there will be many orders in the direction of the spike while only you will be the party trying to go the other way and your fill will be easy...

hope this helps