Trading news and sentiment

There isn't a clear and definite answer to this, it's more of a combination of things

1. Price action tells you a lot about positioning - in general, market participants on the institutional side are trend / momentum followers so that gives you the first glimpse. Then you just watch PX, how it ticks and how the price reacts to events - as a general rule, if there is an event that's supposedly bullish, market rallies but reverses and starts dropping very quickly after, that's a good sign that the event was well priced in / expected and most traders are already long. Most of the time, the market "smells" the event (whatever it might be - economic data, political news / decisions, CB meetings / speeches) even before there are first signs of it happening - then the market move usually happens going into the event as its probability keeps increasing. After that you often get a reversal on the actual event taking place - people call this "buy the rumour, sell the fact". Maybe that's also why it usually pays off to do the opposite of whatever is on the cover of The Economist, Forbes, and co.
2. I talk to other traders / analysts / strategists to check their opinions, as a basic rule - if too many of them are thinking the same way I just get more careful about potential for a counter-trend squeeze. Also there are different positioning surveys done by most of the banks as they ask all their clients in hedge funds / real money funds.
3. It is very important to know how / when to use this positioning information / hunch, because sometimes it is completely irrelevant. Different market participants have completely different trade horizons - for example many times it happens that the positioning of one market segment (e.g. large asset managers - longer term guys) is the opposite to the positioning of another market segment (e.g. fast money hedge funds / bank traders / prop shop traders). Longer term money is harder to get squeezed as you need larger moves for these guys to feel the mark to market pain and you also need a lot of new information / news / data to convince them they have a bad trade on. That is why these squeezes can last for days / weeks once they kick in. On the other hand faster type money that punts around a lot (some HF guys, bank traders etc.) is much easier to squeeze, especially if they (as a group on average - for example when chasing a move after an event) get a position on at a bad level.

To give you an example for the current market environment, let's look at USD -> we've been in a decent downtrend (i.e. EURUSD higher) all of 2017 and pretty much most of the risk takers have been participating in that move having short USD bias most of the time (both longer term and shorter term money). This year, the turn for stronger USD has been completely missed by the longer term community and all these guys are still quite bearish USD with a long term horizon (the narrative is that you are approaching neutral rate / end of the hiking cycle, you are in late cycle economy wise and the country is running a double deficit - fiscal and current account). I think for these guys, you really need to break below 1.12 on EURUSD or so, to give up and change their bias for stronger USD. On the other side, faster money like hedge fund guys, bank traders, quant funds like CTA have all been trading USD on the long side since April / May this year. These guys have much less ability to hold on to their views and tend to stop out quicker if the market starts going against them - this is what happened into month end of October, short term community was pushing USD higher into month-end rebalancing (you can check my other posts in other threads where I explained it) but they got overcrowded (which is why I was reducing my EURUSD shorts yesterday and the day before) hence you are getting this huge squeeze today - you can feel by price action that it is positioning driven because PX remains incredibly bid with no pullbacks and any consolidation / correction is flat / sideways.

What does, "PX" mean? Thanks.

Firstly, thanks very much for the response. I was not expecting such detail so thank you. Clearly you know what you are talking about here and I have a few questions regarding a few points you made. At the risk of looking stupid and asking silly questions I am trying to see how the picture you have painted is applicable to retail trading given small account sizes when trying to use responsible amounts of leverage.

Quoting DaRealTrader

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{quote} There isn't a clear and definite answer to this, it's more of a combination of things Price action tells you a lot about positioning - in general, market participants on the institutional side are trend / momentum followers so that gives you the first glimpse. Then you just watch PX, how it ticks and how the price reacts to events - as a general rule, if there is an event that's supposedly bullish, market rallies but reverses and starts dropping very quickly after, that's a good sign that the event was well priced in / expected and...

Ignored

I completely subscribe to that explanation. A number of people discuss trading into the event, or looking to enter in the direction of the expectation (for a data release) days before and then either go into the event flat or actively manage any profit the currently have. I have found the validity of this method hard to quantify despite making ‘logical sense’.

Quoting DaRealTrader

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{quote} I talk to other traders / analysts / strategists to check their opinions, as a basic rule - if too many of them are thinking the same way I just get more careful about potential for a counter-trend squeeze. Also there are different positioning surveys done by most of the banks as they ask all their clients in hedge funds / real money funds.

Ignored

So are you talking to institutional traders? (hedge funds etc) if so as a retail trader those resources are difficult to come by unfortunately. With regard to position surveys you are obviously not talking about positions regarding the weekly CFTC COT report? Are these inter-institution (private) surveys? If so again hard for a retailer to get?

Quoting DaRealTrader

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{quote} It is very important to know how / when to use this positioning information / hunch, because sometimes it is completely irrelevant. Different market participants have completely different trade horizons - for example many times it happens that the positioning of one market segment (e.g. large asset managers - longer term guys) is the opposite to the positioning of another market segment (e.g. fast money hedge funds / bank traders / prop shop traders). Longer term money is harder to get squeezed as you need larger moves for these guys...

Ignored

The long term money you refer to are they Sovereign wealth type funds or just the large Institutional banks like GS MS ec? And are you defining fast money hedge funds as companies with say 250m or less AUM (arbitrary figure)?

Quoting DaRealTrader

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{quote} To give you an example for the current market environment, let's look at USD -> we've been in a decent downtrend (i.e. EURUSD higher) all of 2017 and pretty much most of the risk takers have been participating in that move having short USD bias most of the time (both longer term and shorter term money). This year, the turn for stronger USD has been completely missed by the longer term community

Ignored

I am just trying to imagine what kind of asset management firm of any size did not participate in the recent 2018 USD rally. Are you saying that they (longer term community) viewed this move as basically a 12 month pullback in a longer term uptrend on EURUSD? As a trader that is not a position I could begin to consider if I wanted to make a profit / income.

Quoting DaRealTrader

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{quote} and all these guys are still quite bearish USD with a long term horizon (the narrative is that you are approaching neutral rate / end of the hiking cycle, you are in late cycle economy wise and the country is running a double deficit - fiscal and current account). I think for these guys, you really need to break below 1.12 on EURUSD or so, to give up and change their bias for stronger USD.

Ignored

Is this the longer term money view/narrative? Because as far as I can tell its valid and that is how I am viewing the current state of the USD and am waiting for eventual sustained weakness…..at some stage. Despite having been a buyer most of the year.

As a side note:
My approach to trading is to formulate a big picture bias based on central bank monetary policy direction. Look for diverging / converging policies among the major CBs. Wait for price on the selected pair to move inline with that directional bias based on a catalyst either reinforcement of the hawkish/dovish CB sentiment (Speeches, Interest rates, Tier 1 Economic data etc) or any form of viable sentiment (risk on/off, geopolitics, correlated markets). Then take swing trades in the direction of the primary big picture bias. It’s worked well in the past but struggled a bit now that the geopolitical climate is a major drive over the shorter term. Can it be that simple or is this concept floored?

It's good to see a thread like this but I've never been able to make sense of it to reliably give me intraday bias from sentiment or a high-impact red factory. For me, a red factory = a puzzle factory.

same here. i always try and avoid such.

I don't avoid it, not at all. But you have to use a strategy independent of news, it would have to be compatible since there are releases almost daily.

where exactly are you struggling to make sense of it? maybe i can help

I'm not struggling with news. I've developed a strategy independent of whether or not there are high-impact releases.

Trade today Long EURUSD off the back of NFP

The job numbers were good but like i said before the Fed are not concerned about job numbers but rather inflation and in that sense wages have failed to increase and thus there is this decoupling of wages in respect to job growth. The initial spike down gave me a cheaper entry and closed off fairly quickly for a 0.5% gain to the account for November. Additional context is the $ selling that's been going on over the last few sessions which was what really made me initiate the trade as that flow i see continuing at least to the end of NY session.

Lots of good stuff on this channel

Listen to 079: The biggest financial experiment the world has ever seen—global macro investor, Raoul Pal by Chat With Traders #np on #SoundCloud
https://soundcloud.com/chat-with-tra...macro-investor

Use forexlive for intraday sentiment

Euro dumped on this news. This is a first class lesson on unscheduled news and sentiment changing in a blink of an eye.

Shit I missed it. https://www.forexlive.com/centralban...eport-20181102

It's often the case that there is good volatility even with or without unscheduled news and sentiments. So why not develop a strategy that is always on the lookout? This way, it will be a "catch all."

Totally agree. I have made a good deal of profit from unscheduled news but more from scheduled

There are no stupid or silly questions, and I am happy to answer anything whenever time allows. I've once been trading on the retail side too and I often struggled with no information, misinformation and overall lack of anyone experienced willing to share advice. Small account size and high leverage are the retail traders' weak spots as it forces you to overreach and aim for returns that are either unrealistic, or realistic but with a high probability of an accident during the journey. The number 1 priority of a trader should be to learn how to survive in the game without losing money, rather than trying to learn how to make a lot of money in the first place. If you learn how to survive without blowing up, you will eventually learn how to make money at some point and that survival instinct will became an unconscious part of you always being there for you when you need it (even after you learn how to make money). If you try to learn things the other way around it is not an "IF", but rather just a question of time when the blow-up happens.


To do this going into a data release, probably not, can hardly imagine that. Because when it comes to data, what is really important is how the data point misses vs the consensus of x-number of economists that are forecasting that number. You would need to find a way how to be better at economic forecasting than all these guys combined, which must be very difficult - though could imagine there are some quantitative hedge funds trying to do that. There are times when it is easier than that - economists often tend to be slower to adjust to outside events / market developments, especially when it comes to impact on soft / leading economic indicators and they would always "forecast" them within the general trend, but would always be conservative / too slow when there is a change of trend for these indicators - that's why you had such a much larger drop in EU PMIs than expected recently - the economists didn't want to believe the turn is real and how negative the impact of Italy, QT, trade tensions are for the companies. But all in all, I find it very hard to build an edge purely around these things, yes it certainly helps to see and understand them (and it only comes with experience) but it's not enough. On your question about quantifying things - I don't think it's productive to be too focused on quantifying things, i.e. looking for strategies and approaches where a+b=c (there is a ton of that here on FF and I am quite sure none of it really works). It would certainly be great as it would take off the burden of "thinking" off trader's shoulders, but my personal experience taught me that markets are constantly changing and the best discretionaty version of yourself will always beat any system out there.


Yes, I am an institutional trader / PM myself and I do talk to many guys and have many friends in the industry. The reality is that a lot of these guys are still consistent money losers (in % terms it is a much smaller proportions than on the retail side though) and many of them just have fancy degrees and the only thing they know is how to talk smart and pretend to be important Yes, CFTC / COT would be one of the things I would look at, inter-institution surveys as well - those would be very hard to get for a retail trader. But again, positioning on its own is more useless than anything else unless you can intersect that information with global macro, sentiment, upcoming events and market technicals.


This is how I am defining it:

Longer term Money: SWFs, Pension funds, Insurance companies, Asset Managers
Fast Money: Hedge funds (some of that can be longer term, majority is short term though), Prop trading shops, Investment banks (as a sell side (i.e. bank) trader you can rarely run overnight risk these days with Volcker rule)


Yes that's correct, most of the longer term money is rather bearish on USD as there are many structural drivers that should prevail and make it weaker over the next years, like:

 

1. Structural double deficit, both current account and fiscal (that's been growing even more)
2. Economy that is approaching the end of the economic cycle (many reasons for that which are too long to explain) hence FED tightening coming to an end
3. Messy political environment and uncertainty
4. Global central bank reserve diversification - more than 60% of global reserves are still in the USD, but that share is declining for many reasons (other currencies becoming important like CNH, political uncertainty in the US and others) - that has a tremendous long term flow impact as CBs are very big players in the FX market
5. All the financial sector sanctions being imposed by the current US administration on many countries are acting as a negative driver too - basically, if you are dependant on USD transactions as a country you are at the mercy of the US and that's why some countries like Russia have been selling all their US Treasury holdings. Also commodities like oil are not being purely traded in USD but more and more in EUR or CNH.
6. If you look historically at the UK / The Great British Empire, you can see how GBP completely lost most of its value over the last 120 years since the empire collapsed. Many people / historians compare the current US to the British Empire at its peak, in terms of overreaching economically, militarily and politically

CB monetary policy divergence / convergence is definitely something every macro trader looks at most of the time, so you are on the right path I would say! There are many different ways how to skin a cat. Anyway, hopefully it's helpful and clear, otherwise feel free to ask.

Evening

We have a busy central bank week ahead with BOJ, AU, NZ, US (main n rate events, minutes etc but also speeches). We additional have US mid terms and potentially brexit news. Late last week some word out of the US hinting at China trade talks but it hasn't been official yet so just rumour.

With AU and NZ you can often catch a move post data in the EU session but not always so keep that in mind.

Should be an interesting week so lots of research to do for preparation. Catching up on previous central bank statements and the data to help paint a picture of what to expect and provide a fresh backdrop for opportunities. Mid terms could steal some of the limelight so be sure to keep tuned into that as there could be trade opportunities.

Iran sanctions are also in the agenda with potentially more according so some news outlets. This could drive oil so keep Cad in mind as overlapping data supporting a stronger or weaker currency could also offer up opportunities.

Plan ahead and do your research. I am off for the next 2 days but will most likely be on the hunt and definitely researching.

Massive beat on new Zealand data. This changes rate expectations for sure.

From their last statement

The Official Cash Rate (OCR) remains at 1.75 percent. We expect to
keep the OCR at this level through 2019 and into 2020, longer than we
projected in our May Statement. The direction of our next OCR move
could be up or down.
While recent economic growth has moderated, we expect it to pick up
pace over the rest of this year and be maintained through 2019.

Thank-you for continuing this thread EcoTrader......... It'll never get star ratings in the Factory because, as we know, most people love TA, as it's just so visual!

Hey Rover

You'd be surprised how illiterate some of these guys are when it comes to this. Just last night one of the trolls looked at my account and seen a buy and sell euro against 2 other currencies. He seemingly believed that this is a beginner mistake and completely disregarding the fact that euro can be strong against one currency and weak against another. As you continue your journey into fundamentals you will realise just how weak a technically focused trading approach is on its own. Some of you might even drop it entirely for signaling trade entries. As long as you factor in fundamentals you will be ahead of the rest of the retail crowd.