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trying to understand news in respect to trading

  • #1
  • First Post: Jan 26, 2011 10:15am Jan 26, 2011 10:15am
i am trying to learn about the impact of news on currency.

today i saw USD news ( New Home Sales ) was good. currency of USd rose for 7 minutes then it crashed down.

what is the explanation for this? should the USd not rise further?

or does it has something to do with Crude Oil Inventories at 4.8M ?

or has it do with FOMC Statement and federal funds rate news still coming up?

or anything else? what did i miss. why did the USd dollar not rise while New Home Sales news was good?

thanks in advance
  • #2
  • Jan 26, 2011 10:57am Jan 26, 2011 10:57am
Quoting trade4fun
i am trying to learn about the impact of news on currency.

today i saw USD news ( New Home Sales ) was good. currency of USd rose for 7 minutes then it crashed down.

what is the explanation for this? should the USd not rise further?

or does it has something to do with Crude Oil Inventories at 4.8M ?

or has it do with FOMC Statement and federal funds rate news still coming up?

or anything else? what did i miss. why did the USd dollar not rise while New Home Sales news was good?

thanks in advance
News is often times priced into the market before the announcement. Unless the numbers are shocking, then the move will be faded.
  • #3
  • Jan 26, 2011 12:34pm Jan 26, 2011 12:34pm
Hello,
I have been around the forum for a while,but since is my first post I guess I can't start my own thread to ask some questions that has troubled my head for some time.
I am asking here since is the same topic if thread started don't mind?

Anyway,I have been only technical for now,but am eager to learn fundamentals also and have some questions for experianced members.
I greatly appreciate any answer and help.

The first thing is information. Where can I get the best and most updated news? Lately I look at Oanda Fxnews,where news keep popping up every minute. Is this what the profesional are looking at also? Is this enough?

Ant the other thing is...I don't understand most of it It seems there are many irrelevant news that do not make any impact...how do I husk out only the good important stuff that do some impact?

Like for example,where could I get up to date news when US decides to end QE2...
I always find out about this things when the first impact on the market has already ended.
I wan't to learn and know this stuff so I can be with the flow when this things happen...
Is that even possible or am I dreaming?

Basicly I would like to know how do the pros do it?

thank you
Tilt
  • #4
  • Edited 10:19pm Jan 26, 2011 10:14pm | Edited 10:19pm
As Scotty B said, the news is less important than what people's expectation of the news is.

If 95% of people think interest rates will increase by .25% and they do then there will be no change to price. If 95% of people think interest rates will increase by .25% and they stay the same it will affect the price.

I'm not a news trader, but i would trade the news if i thought i had information contrary to popular belief (and only if i thought there would be a big enough reaction to effect price if i'm right).
  • #5
  • Jan 26, 2011 10:34pm Jan 26, 2011 10:34pm
In my opinion, people dont trade the news, they trade their beliefs about the news.

Consider there is a hurricane coming in to a particular city with a scale of say 8(very strong). The market expects some serious damage(note, there is an expectation or belief that this hurricane will raze structures to ground).So if in case there is a news that this hurricane died 300 kms away, its a surprise to the beliefs held by the market.So you will have a price change.

Or if, the hurricane does indeed get home and achieves what has been felt, then smart money will dump financial insurance stocks and buy construction ones.

So the understanding is, people believe / interpret an possible information as tradable while it might not be, or it might not be the way we think it.

So the essence in general is, try to anticipate what the participants are thinking, and do just the opposite.
If the retail/participants in general are expecting a huge catastrophe, then even a slightly less huge catastrophe will also prove to be a dampener.

I hope I presented some ideas regarding the situation.
  • #6
  • Jan 26, 2011 11:10pm Jan 26, 2011 11:10pm
Quoting trade4fun
i am trying to learn about the impact of news on currency.

today i saw USD news ( New Home Sales ) was good. currency of USd rose for 7 minutes then it crashed down.

what is the explanation for this? should the USd not rise further?

or does it has something to do with Crude Oil Inventories at 4.8M ?

or has it do with FOMC Statement and federal funds rate news still coming up?

or anything else? what did i miss. why did the USd dollar not rise while New Home Sales news was good?

thanks in advance

To me news is pointless.. the big players don't care about todays news.. or tomorrows news.. they are sessions and years ahead.. so I agree with scotty that todays news was factored into the price a long time ago.

news comes around, it goes up, it goes down

I see a lot of "dont trade 30M before and after the news"

I have been sitting through the news and usually it will not affect me.. and when it does affect my trade its for the better


I think many are scared of the news because they have such tight stop losses.. oh well thats a whole new topic

don't try to understand the news.. it will have a totally unpredictable outcome when you start saying "oh reports were better than forecasted.. it must go up then"

  • #7
  • Jan 27, 2011 1:48am Jan 27, 2011 1:48am
For a complete newb i would say try to understand the basic terms and their impact like Risk Aversion, Risk Appetite, than figure how inflation, growth, employment, interest rates work together and effect each other, learn about intermarket correlations between stocks, bonds, FX and commodities.

Read some books about the topics (their are plenty of them recommended in the thread below) also keep an eye on news on the main page of FF specially from Bloomberg they interpret why things happened after the news comes out so for educational purpose they could help.

here is a nice thread to start with.

http://www.forexfactory.com/showthread.php?t=216097

and remember dont be in a hurry it would take some months to just get your feet wet.
.
  • #8
  • Jan 27, 2011 7:28am Jan 27, 2011 7:28am
To get news as they happen you need a news wire, something like RanSquawk or Trade the News is a good option.
News trading basically comes down to waiting for something unexpected happens. I.e everyone is expecting a bad GDP and it comes out really good. Or other way around, or even, expectations for good GDP and GDP comes out much much better.
Once something unexpected happens you can ether try to get in ASAP or wait for some sort of retracement and entering. Obviously it's close to impossible to beat the crowd when trading the numbers since everyone is doing it, but it the surprise is big enough, it can still work out.
Sometimes speeches by various central bankers provide great opportunities, i'e when Bernanke started off the QE2, since it's basically everyone listening and reacting, you can get in at a good price if you're quick enough at interpreting what's being said.
All news trading is down to some unexpected news hitting the market and causing the adjustment in prices. The bigger the surprise, the bigger the reaction.
  • #9
  • Jan 27, 2011 7:55am Jan 27, 2011 7:55am
Quoting newyear498
To me news is pointless.. the big players don't care about todays news.. or tomorrows news.. they are sessions and years ahead.. so I agree with scotty that todays news was factored into the price a long time ago.

Obviously neither you or scotty have traded news that much. It also depends what time perspective you're talking about here. But to say that today's news was factored into the price long ago per se is simply erroneous.
He was looking for the card so high and wild hed never need to deal another
  • #10
  • Jan 27, 2011 8:09am Jan 27, 2011 8:09am
Quoting dr_who
Obviously neither you or scotty have traded news that much. It also depends what time perspective you're talking about here. But to say that today's news was factored into the price long ago per se is simply erroneous.
well your very defensive about this topic.. I little touchy for you?

your absolutely right.. current price never reflects anyones outlook on the market


  • #11
  • Jan 27, 2011 8:20am Jan 27, 2011 8:20am
Quoting newyear498
well your very defensive about this topic.. I little touchy for you?

your absolutely right.. current price never reflects anyones outlook on the market



Only because I've traded news very successfully for about 3 years and therefore when someone comes along to make such a sweeping statement, I jump in........possibly defensively......

Out of every technique I've looked at in trading fx, news is the only one that I think has any validity or rather, that I've been able to get to work profitably.......so I'm very defensive about it.......
He was looking for the card so high and wild hed never need to deal another
  • #12
  • Jan 27, 2011 8:21am Jan 27, 2011 8:21am
I have been trading the news quite a lot and sucessfully. On forexfactory.com, there is a list of the major reports coming out. I only trade the major ones, that is, intrest rates, US employment data and rating changes.

To answer you question, the main reason is the FOCM meeting. That is probably the biggest report that comes out for forex. If their is a major report coming out, the market will react a lot less to other reports coming out, pardoning a highly suprising report. That is why people should be only trading the major reports in my opinion.

Just a couple of extra tips, don't get too greedy. My average take profit ranges from 10-50 pips. Tipically, the market will jump, meet a lot of resistance and go back down, sometimes even lower than the original price. But I guarentee you if you trade a major report the right direction, you will make money. And example of this was the FOCM meeting. The results were expected. Yet I still made 30 pips easily. The market did retrace quite a lot, but it will almost always go the direction of the report.

Another examply just recently was the Unemployment Claims report and the downgrade of Japan. Anyone could have easily made 25 and 75 pips, respectively. Wait and the oppritunities will come.
  • #13
  • Jan 27, 2011 8:30am Jan 27, 2011 8:30am
Quoting dr_who
Only because I've traded news very successfully for about 3 years and therefore when someone comes along to make such a sweeping statement, I jump in........possibly defensively......

Out of every technique I've looked at in trading fx, news is the only one that I think has any validity or rather, that I've been able to get to work profitably.......so I'm very defensive about it.......
Oh don't get me wrong.. news can be profitable in deed.. I just noted from a perspective of "oh this one news report was good it MUST go up.. is a dangerous assumption.

Anyways I find current price reflects traders future expectations.. all there future actions are shown in price.. so if you think the news is going to have a positive reaction tomorrow.. you buy it before the news.. correct?

so if you place a trade before the event.. then the traders expectation of the event is already factored in.. and since the event doesn't make you money and the other traders do.. the event for me is one beautiful distraction to let you make a successful play on the prey

well I shared a little more than I expected but hey.. we all have our own views.. like I usually say.. contrarians make money too
  • #14
  • Jan 27, 2011 8:42am Jan 27, 2011 8:42am
Quoting newyear498
Oh don't get me wrong.. news can be profitable in deed.. I just noted from a perspective of "oh this one news report was good it MUST go up.. is a dangerous assumption.

Anyways I find current price reflects traders future expectations.. all there future actions are shown in price.. so if you think the news is going to have a positive reaction tomorrow.. you buy it before the news.. correct?

so if you place a trade before the event.. then the traders expectation of the event is already factored in.. and since the event doesn't make you money...
I think no single news event can be separated from the zeitgeist prevailing at the time of the release. Sometimes they are factored in, sometimes not and sometimes other things are happening concurrently which make the market appear to be saying something which it isn't. Like most trading techniques, things aren't black and white.

Then of course there's the whole can of worms called 'insider trading'.......just ask George Soros as its something he's an expert in......
He was looking for the card so high and wild hed never need to deal another
  • #15
  • Jan 27, 2011 8:59am Jan 27, 2011 8:59am
Quoting newyear498
Oh don't get me wrong.. news can be profitable in deed.. I just noted from a perspective of "oh this one news report was good it MUST go up.. is a dangerous assumption.

Anyways I find current price reflects traders future expectations.. all there future actions are shown in price.. so if you think the news is going to have a positive reaction tomorrow.. you buy it before the news.. correct?

so if you place a trade before the event.. then the traders expectation of the event is already factored in.. and since the event doesn't make you money...
I completely agree that the forecast and traders expectations affect the market and news trading. And I have seen positive reports and a negative move, that is why I only trade major reports. I completely agree with you, the forex market is more like the futures market when it comes to news.
  • #16
  • Jan 27, 2011 9:13am Jan 27, 2011 9:13am
trade4fun, what I can add is that many traders use these announcements as an excuse to get out of a position, but usually at some point the larger trend will continue - maybe that day or one or two later. For longer-term traders, a sharp pullback in price from unexpected news is an excuse to add to the position.

tilt, if, by 'professional' you mean Institutional traders, they're generally hired to trade one instrument (EURUSD, Soybean Futures) or one sector (Energy, Biotech), so their news is filtered to pertain directly and peripherally to that, and as well, they have assistants to monitor these things and report.

newyear498, I notice that most moves ahead of big news occur at the beginning of the week. If EUR interest rates are on Thursday, it seems like no one even cares about it or wants to deal with it until the Monday before.
  • #17
  • Jan 27, 2011 1:59pm Jan 27, 2011 1:59pm
I attended an FX trading workshop last weekend where it seemed like some of the participants had invested a good deal of ego in being 'right' in their economic predictions, and wanted to trade that. The main trainer was a trader and fund manager who has to trade long term as well as short - but for those of us who don't have to trade long term, is there something to be said for watching and absorbing the effect specific news has on price, but not attempting to second guess or even explain that effect?

Max
  • #18
  • Last Post: Jan 28, 2011 2:23am Jan 28, 2011 2:23am
More than the news, I think, its people's expectation to a particular piece of news. I know, it now looks like everybody has got a theory, but in essence, when you trade news, you are almost trading sentiments (of course assuming that lightning quick speed is given).

In stocks, it can be highly seen. An earnings report missed the estimate by just 10 cents, *poof*,*boom*,*crash*... Its insane and inane. Nobody can see the future a quarter ahead what will be the earnings?

But I believe, one can subjectively make out which way is the wind is blowing by taking a look at the charts prior to 1-2 days of release.

Subjectively try to answer, is it trending up or down, if either, has it recently acclerated?

In case of a stock (because I have experience only in that), if the market is not expecting any thing out of ordinary, then the previous state is maintained.

Ajax
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