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economic news trading strategy links? 1 reply

Any software to test news trading strategy? 0 replies

Strategy for trading the news? 2 replies

Testing this simple strategy - News trading 23 replies

Strategy for news trading

As far as I see it, the problem with straddling is that you don't actually have to use your brain to trade it - inasmuch you could describe it as a brainless strategy. The problem is that the guys at the banks and brokers have one over straddlers as they are able to use their brains (and experience etc...) to take all their money.
I have been a straddler for most part of my news trades; but my most profitable news trades were not straddling.

Once I profited very handsomely by taking a position hours ahead of the announcement. Another was to take a position after the news was released. It takes quite a good amount of nerves to handle such kind of trades though.

But my worst trades are TA. I have seldom made money trading Technicals.
Quoting Castlemain
As far as I see it, the problem with straddling is that you don't actually have to use your brain to trade it - inasmuch you could describe it as a brainless strategy. The problem is that the guys at the banks and brokers have one over straddlers as they are able to use their brains (and experience etc...) to take all their money.
I am happy to use a brainless strategy as long as it makes me money
Quoting PipStar
I am happy to use a brainless strategy as long as it makes me money
The fundamental problem with straddling for me is that the figures for many news releases come out as expected. When this happens, the price often jumps about both above and below the pre-release price. furthermore, you often get filled before you get the chance to cancel your orders and you're left hoping that your fill will turn out positive. Even worse, you can have both orders hit, thereby guaranteeing you a loss.

If you wait till after the spike and then trade the numbers and the market's reaction to them, you might not win so many pips, but you are far more likely to eliminate the vast majority of your losses. This then gives you the confidence to leverage your trades and make good, consistent money.
Quoting Castlemain
If you wait till after the spike and then trade the numbers and the market's reaction to them,
Meaning what? How can you tell if the post spike movement is up or down, and how long it'll last? What is your strategy for that?
Has anyone thought that certain economic news announcements earlier in the month can be predictive of announcements later in the month? At least in terms of direction.

Although I do not have the time nor the required research expertise to find this information and correllate it with backtesting, there has got to be at least a directional relationship between certain economic factors. A possible example could be... if jobs are up then sales will be up. ?? !

Has anyone here looked into announcements from a relational point of view? Maybe its jobs up in one month means sales up in the next.

After all, the sections of the economy of any country are not isolated.

This would be fundamental trading, so no mechanical SL or TP but at least the trader would have an edge in the direction of price. I know there are studies done on "how much a certain news announcement will move the market" so that could be used as a target.

What do you think?

Predictable Lou
I like to chart the month to month results. Sometimes a trend can be seen. It gives me some insight and helps in my trade decisions and setup.
lordo,

In your charting, have you seen relationships between the economic indicators? I am not sure about taking one indicator (news) and comparing it against itself from one month to the next.

I am talking about relationships between say, Retail Sales and Inflation. Does the direction of one, tend to predict the next direction of the other ? Does this happen month after month?

I can visualize a matrix that has along the vertical axis all of the major economic news announcements for the month. The same across the horizontal axis. This would create a chart where you could compare the direction of the NFP against Retail Sales, FOMC, CPI .. (for example), actually every News announcement against every other one. A simple chart would have arrows or + and - signs to show direction. A more complex one could have direction and number of pips moved in that direction. (An even more complex one might introduce reaction in the first 5 minutes vs the next 60 minutes.) Then you could see for a month if there were correllations. Then comparing the past 12 months you could see which economic indicators moved in the same direction as others and how many times this happened. (could even check for negative correllations) If there were correllation for 10/12 or 83% of the time... That is a good leading indicator !

Then with 83% probability one could predict the movement (in my example) of Retail Sales after noting the direction of the NFP.

As I mentioned earlier, there must be some correllation (either positive or negative) because these reports make up the sum of the economy.

Lou
Keep in mind that most brokers' execution of trades is totally different on their demo vs. their live platforms. On demo accounts you get instant fills with no slippage. When you switch to a live account, you trades get slipped, the spread widens, and execution goes to pot. Some brokers are worse at this than others, but they all do it to one degree or another. It is the nature of the beast when trading during news announcements. So even if you are wildly successful doing this demo, still exercise extreme caution when doing it live. It's a totally different ballgame.
hikerbiker,

Based on the idea I put forth, one would have his order placed quite awhile prior to the announcement. The trader would already be in the market. Slippage and blowing past entry orders would not be a problem. Profit and stop loss orders might be. Know your broker.

Lou
Quoting Lou
Has anyone thought that certain economic news announcements earlier in the month can be predictive of announcements later in the month? At least in terms of direction.

Although I do not have the time nor the required research expertise to find this information and correllate it with backtesting, there has got to be at least a directional relationship between certain economic factors. A possible example could be... if jobs are up then sales will be up. ?? !

Has anyone here looked into announcements from a relational point of view? Maybe its jobs up in one month means sales up in the next.

After all, the sections of the economy of any country are not isolated.

This would be fundamental trading, so no mechanical SL or TP but at least the trader would have an edge in the direction of price. I know there are studies done on "how much a certain news announcement will move the market" so that could be used as a target.

What do you think?

Predictable Lou
Hi Lou,

I think that this is an interesting train of thought. I am sure that certain indicators could be predictive of others, for instance, low consumer confidence could pre-empt a low CPI. After all, if one bit of the economy is bad, it's bound to affect the others.

However, I think that in terms of trading, it's better to keep this in mind for confirmation of your trade rather than trying to predict what the actual figures might be. The problem with many of the figures released is that they are taken from a few thousand sources and magnified up to get a rough picture of the whole economy. So, you could have one factory closure in a survey that could mire what would otherwise be a healthy statistic.

Banks do indeed pay vast sums of money to economists to try to do exactly what you say, and yet time after time they get it wrong (my trading edge is to cash in on these surprises), so I don't think it's a good idea to try and compete with these full-time PHD guys and the banks who employ them, unless you have an economics PHD yourself and have a fabulous insight into this market!
  • Post #32
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  • Edited 6:09am Feb 25, 2007 5:57am | Edited 6:09am
Quoting Golden Boy
Meaning what? How can you tell if the post spike movement is up or down, and how long it'll last? What is your strategy for that?
The initial spike is created by the banks. They want to get in on the first piece of action, so they automatically adjust the price in the direction they believe the market should go. How traders react to the spike and the figures released is another matter altogether.

The way to get a handle on how the market will react following the spike is to look at past releases over at least 18 months and work out what differential you should trade. for instance, if the GDP estimate is out by more than x, you know you are safe to make a trade because you have seen the market push the price further in the direction of the spike where this differential occurs. Get a demo account with FXCM and use their charts - you can pull up historical data with their free charting package.

There are some news releases that I won't trade, such as the PPI, because I don't feel that the market pays close enough attention to it, and the nonfarm payrolls (at least for the moment) because the market is too hysterical about it.

The difficulty with this strategy is that you will typically only trade 5-6 releases a month (the ones that you are happy to trade that ALSO have the required differential between the consensus and the actual) and it requires a great deal of patience. However, because you only trade when you are very confident of the market's direction, you can (sensibly!!!) leverage these trades up and hopefully return a healthy profit for the month with minimal losses.

The important thing is NOT to try and get in between the moment of the release and the occurrence of the spike. If you find a way of doing this (and many traders have done in the past, and banks/brokers have moved to stop them) you are taking the bank's/broker's money and not another trader's (assuming you're not trading with some tinpot bucketshop) and they will shut you down quicker than you can say 'arbritrage'. Far better to develop a strategy that will make you profitable in the long term.
the problem is that during volatile news announcements, your orders may not be filled.
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  • Post #35
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  • Last Post: Jul 1, 2012 10:51am Jul 1, 2012 10:51am
Quoting Lou
Has anyone thought that certain economic news announcements earlier in the month can be predictive of announcements later in the month? At least in terms of direction.

Although I do not have the time nor the required research expertise to find this information and correllate it with backtesting, there has got to be at least a directional relationship between certain economic factors. A possible example could be... if jobs are up then sales will be up. ?? !

Has anyone here looked into announcements from a relational point of view? Maybe...
That strategy is too simplictic to tackle the beast that is forex. However, the idea has some merit. Supposed you construct a moving average of all economic numbers, ie CPI, GDP, etc etc... you could probably guess where the any particular is probably headed. If all the numbers were on a positive trend, I would go long on the currency. I've thought doing something like this, but I honestly don't have the time to develop a strategy like this
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