How to understand price action in news?

Hi mates, I'd like to make a question that hope somebody can help me with.

I've seen tons of times that after a news release the price goes in the oposite direction of what should have done acording to the number released.

For example, today Philadelphia Index was good for the USD but dollar plumeted, yesterday there were many bad news for the USD but the dollar rocketed

And so on, so, I don't understand a sh*t what's the point when the release is good or bad it looks like the only holly grail indicator for news is, if I buy then the price goes down, and if I sell, surely the price goes up.

Lately, good news can be bad and vice-versa... thats one of the dangers of news trading. Who knows what "they,re" thinking, but you only need to look to the recent past when most were looking for a interest rate drop. Any news that was bad was good only because it supported the arguement for reduction of rates. We may be experiencing a similiar thing now.

You are correct sir! This week has boggled my mind! It's "bizarro" world week!

The USD makes no sense this week....lol.

Lately ?

So it should be automatic then ? Good news, go up - bad news, go down.

Life and the markets are not that way.

Never has, never will be.

Trading just on the basis of outcome of news events alone is a sure loser. Unless you have tomorrow's newspapers today.

The problem lies in believing that there is a simple cause and effect relationship between news and price. There isn't. What really matters are the expectations of the market participants. Let me give you simple example.


It's NFP Friday. The estimate is 100k. The whisper number is 110k (whisper number being what some professionals believe it will be,for whatever reason they may have). The dollar has been taking a pounding. Lots of negativity about the dollar.

The number comes out at 115k. Dollar spikes up a bit, then starts selling off and resumes the pounding. Even though the number was better than expected, it just wasn't enough to overcome the negativity.

In order for the dollar to have made gains and held them, at least for the day, the number would have to be significantly better than expected, say 170k. We're not even getting into revisions and the other data that accompanies NFP.

In a nutshell, if the expectation is high that the number (any one, take your pick) will be good, then if it comes out at the expected number or close to it, people are then disappointed. If it comes out lower than expectations, people are then disappointed. Only if the number wildly exceeds the expectations will people be happy. Just think about this for awhile, as it's everywhere in life. The bottom line is that the numbers have no intrinsic value whatsoever. The only value is that given to them by the participants which is dictated by their expectations.

Yes, I used generalizations here, but it's applicable. Part of being a trader is learning how to gauge market sentiment. Pure technical traders have no use for this, but that's their decision. Pure fundamental traders always have their finger on the pulse of the participants. It's your decision how you trade. However, if you decide to step in front of the speeding train that we call "announcements", you'd be a fool not to gauge the sentiment before hand.

Nice post Dopey, thanks , I think you are right with that.

Fortunately I don't trade news, but take a look at them to meter the weather, and I think lately they have whipsawed more than some months ago, when I started in Forex.

This week I got stoped in one position after the news; I thightened the stop to protect it before the moment, then I saw the number and thought "good, no stones in the way, it's going to go to the place I... damn! kicked out "

By the way, more trades coming. Nice weekend.

i should say that not always a good number means something good.
you should also check which are the component of that news.
for example last nfp release come better, but the actual number (of jobs created) was very bad. the nfp number came good because of some statistical lagging indicator (for more info Isotonic posted some news about it, from John Mauldin i think).

Suntrader, News trading is risky business as we know ,Your being silly...no one advocates trading in the manner you describe. News is interpreted based on current conditions,this is nothing new, sometimes seemingly good news can be bad because it's not what the market wanted to hear at that point in time. I didn't want to write a book on the subject, only to address our friends puzzlement in a concise manner.

Didn't say you were advocating a manner to trade the news one way or the other.

I was questioning saying lately it is hard to understand which way the market will take the news. There are periods of high volatility and low volatility. Reactions to news as expected and not as expected.

I have been around long enough to know the news has always been "subject to interpretation" to try to determine direction after a release.