Fade NFP Effects On Crosses

The rational behind this strategy is very simple: A news release like NFP should only affect the USD. But more often than not one can see major whipsaws on pairs that do not contain the USD. By fading these spikes we are actually 'protecting' these crosses from the (non) news event.

Here is the setup: Preferrably trade a cross with a good range/spread ratio. Just before the news open a minute chart and add a 60 period SMA as a point of reference. The price should be close to the SMA and not rallying. Because we don't know how big the whipsaw / spike will be, and in what direction, just setup several limit orders in a range above and below the SMA with profit target the SMA. That's it! Just wait and cash the pips as the rest of the market is caring for the USD majors and the banks computers can't arbitrage away the effects on the crosses fast enough.

This is how some popular crosses reacted to todays NFP:
It should also work with AUD, NZD,... but the spread is a little larger.
http://img404.imageshack.us/img404/4...crossesmi0.gif

nice observation. keep it up bro

brilliant!

US economy does have an effect on other economies, but for sure you are on to something here...

I've noticed this behavior several times in the past, but you'd need quick fingers to trade it manually. Today's market convinced me to code an EA that works like a reverse straddle. A nice feature is that it can measure the size of the initial move and quickly adjust the take profit level accordingly, if you think there will be a real 'whipsaw' not just a 'spike'.
I'll test it live on the next best occasion.

http://img86.imageshack.us/img86/389...rnewseaqu2.gif

in a couple days you might be wishing you kept this to yourself LOL.

Excellent, I will check this strategy against my charts,

Oh my, every once in a while there is a gem.. This is a great idea. It uses technical data, but relys on fundemental responses...

Great work and thanks for sharing with us!

yeah this forum has some real gems, each is like a needle in a haystack. ive been stuck in my trading ways long before FF started, however, my most profitable system ever was found right here in a thread at FF. and nobody really noticed that i stumbled into a pile of gold well, if they did, they didnt say anything about it, and neither did i

It does look like a nice system to use. There's a connection with these pairs you might be interested in.

The price of GBP/JPY = USD/JPY x GBP/USD

So you see the dollar is more connected then you think! This also works with the other JPY crosses too.

yea just here to comment on how the US economy effects other currencies

EUR/USD moves with the GBP/USD

the USD/JPY moves inversely to those pairs

GBP/JPY moves with the USD/JPY

and most other yen crosses trade the same way that the GBP/JPY does

thats why I do not usually trade more than one currency pair because they all either move in the same direction or opposite direction of the other pairs in the medium to long term. Short term is a different story but I do not really trade short term, to much risk for my taste

almost forgot to mention..

great work! very keen observation

Its not quick fingers that matter, it how your broker reacts. I normally have to put in my trade at least a half hour before news else i will be waiting for a response back from MT4, and who knows what price you're getting in at especially if its at market price. For GBPUSD yesterday, my short got triggered at news time, I couldn't close the short trade as price headed upwards then my broker connection went.

i wonder what that would be
?

Damn... that's a good idea. The reason why it works is because when banks, corporations, etc. (y'know the guys who make up 99% of the market volume in FOREX that you should be paying attention to) put in orders, they usually swap one currency for a basket of various currencies.

So say the NFP news for the USD is bad... what they do is short USDJPY, USDCHF, go long EURUSD, GBPUSD, AUDUSD, etc. simultaneously. By placing these orders in, the dollar is considered "weak" but each currency it is paired with suddenly becomes "strong", which sends ripple effects throughout all the cross pairs. After all the heavy trading is over, the artificially inflated values of each currency return to the normal level... in this case the 60 period MA.

This really looks promising, but it also raises some questions. Is it only good for NFP or can it be used on other volatile USD reports against cross pairs?

How do you know that you will be trading a whipsaw or a spike? If the price only spikes and does not return to the EMA, there is huge potential for loss.

It will be interesting to check out and see if it applies to times other than NFP. Great concept and thought, though!! Congrats!

it can be used for anything that should impact the US economy only. news event, speech, surprise etc etc.

no doubt there is risk in this strategy. the US economy has an effect on almost every major economy around the world, and it usually comes down to the trade relationship. so it is possible that the a surprise comment from bernanke can actually have a real effect on the japanese economy. and in that instance, the GBPJPY might react and follow through, instead of pulling back as expected. you also have to consider the positioning of the players in the market. the EURCHF might react to US news because there are many players long the EURUSD, and when they start exiting this position, that could legitimately effect EURCHF if more players were positioned against the dollar with euros than franks. no doubt the carry trades would cause some situations like this.

btw, if you really think about the basis of this strategy you will realize it is a form of arbitrage. more like a risk-arb strategy, but arb nonetheless.

Looks good, will test it out myself.

And likewise, would this work with say any major pair that doesn't involve EUR when numbers from the European bank come out? I'm not sure, but that's something worth looking into as well.

Since the NFP only affects the USD directly, it's not likely to happen, unless XYZ currency somehow got closely tied to the USD. Remember, the banks don't just trade the EURUSD, or GBPUSD, or whatever single pair when these announcements come out; they trade a basket of currency pairs with USD in it.

btw, we often see conversations about systems getting "ruined" by sharing. this stategy presents the perfect opportunity to explain why a system (that exploits an inefficiency) does in fact get ruined by sharing....

lets say a bunch of start exploiting this (which will most likely happen LOL). we would all be setting up some sort of limit-straddle on the crosses. at first, all of us will get filled on our limit orders. but as more and more people join the party, only the people with their limits closest to the market will get filled, because there is only so much liquidity in this little whipsaws that occur. eventually we will start to step all over each other, everyone putting their limits closer and closer to the market, in order to get filled. eventually this collective behavior will essentially "flatten" the whipsaw, because there will be limit orders straddling the market so tightly. then poof, the inefficiency is gone

i dont know how long this inefficiency will be here (or if it even exists, only real life trading will tell, and fills will be the key), it could be months or years, you just have to get in while the gettins good. the value of this inefficiency is exactly equal to the liquidity that is present in the whipsaws on the crosses. once the liquidity becomes very low, the value is also gone.