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Event Driven FX Trading

  • #21
  • Oct 24, 2012 12:58pm Oct 24, 2012 12:58pm
Another illuminating and fine post from you.

Now we are waiting for this FOMC statement shortly and I wonder what it is you would be looking for in this statement and if you would be trading it.

Regards,
Pipernet
  • #22
  • Oct 26, 2012 4:01am Oct 26, 2012 4:01am
Quoting pipernet
Another illuminating and fine post from you.

Now we are waiting for this FOMC statement shortly and I wonder what it is you would be looking for in this statement and if you would be trading it.

Regards,
Pipernet

Concerning FOMC, nothing new and important was presented inside this statement. Personally, I didn't expect anything new so I was out of the market that time.

Yesterday we had a lot of bad data from US stock ( apple ) and market seems to turned to risk off sentiment. Today we have a GDP data from US. Recently when GDP from GB was publicated we had a very nice reaction on the market. I will look very closely for this data today if it will suprise or not




Coming back to the main topic. First of all we should divide information into two types:

1.Speculative information
2.Macroeconomic information




1. First type of information, truly speaking, is redundant to our game. These are gossips of what someone could think by saying something. This make some kind of unpredictable movements on the market as our emotion cannot be predicted after reading this type of information.

Professional traders after reading such information may liquidate their position, may set their stop tight ( stop in real market is an opposite order to the one we have ), may open any order in emotions, liquidity will be lower as some players with stay away of the market ( later I will write you why this is so important to us and how can we use it ) and in result we get huge volatility.

If you have an expert advisor that is very responsive you could launch it – but when if this movement is unpredictable in time as well ?

2. Second type of information are macroeconomic information.

You can agree with me or not but this type of information have a huge impact on the market. Behind results from the macroeconomic publications stay central banks.



Fed:
“Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.”

BOE ( Bank of England ):

“Monetary stability means stable prices and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions delegated to the Monetary Policy Committee, explaining those decisions transparently and implementing them effectively in the money markets.”


The purpose of existence of Central banks is to assure price stability and high employment which means that highly professional asset managers will look at information, market reaction, correlation of movements to data results and volatility on the news publication.
  • #23
  • Oct 26, 2012 6:15am Oct 26, 2012 6:15am
fully educational
there is a quistion i wanted to ask for a long
how much these events effect the market for how long it goes does it change a longterm trends

thanks
  • #24
  • Oct 26, 2012 8:46am Oct 26, 2012 8:46am
Quoting EventTrader

Yesterday we had a lot of bad data from US stock ( apple ) and market seems to turned to risk off sentiment. Today we have a GDP data from US. Recently when GDP from GB was publicated we had a very nice reaction on the market. I will look very closely for this data today if it will suprise or not.


What currency investors prefer during Risk Off Mode ? USD

Beside this GDP is very important for economy itself not Risk as it give a summary from different branches in a one simple number and in a one fast glance we can decide if it is good or bad.



Look at the picture below. I will try to explain you today what is a market maker trap.




It is a situation when market maker or huge institutional player starts selling/buying market opposite to the direction that would data suggest. It is usually up to 10 points and a little bit below/over recent high/low. Today it was a few points below low ( below this level a lot of EAs put their orders that do not analyse information - they play stupid game and try to earn from volatility - sometimes they earn , sometimes they lose ( zero sum game ) - in fact they become liquidity providers what they do not know and what is difficult for them to admit ). If you read material that I present you carefully you should remember that market makers like it very much because in this situation they buy all pending orders from the market so they can open huge positions in a short price range.





Take Profit in this situation couldn't be bigger because we were in a fresh high area on a USDCAD where is a lot of pending supply.




Quoting braham
fully educational
there is a quistion i wanted to ask for a long
how much these events effect the market for how long it goes does it change a longterm trends

thanks



Answering your question effect can vary from situation to situation but always you should decide before event publication what effect do you expect because of the importance of publicated event or because of a technical level. Usually data have shorterm effect as the market is builded in a such way that it has a very short memory. Market doesn't remember about data which was a week ago.

In general you shouldn't expect big moves as their probability of existance is very limited because of the complexity of the market - it means that after strong move and first stronger obstacle that can be SD, MA, fresh high/low, D1,H4 ( high low open ) dynamics of a move is reduced and it CAN ( of course it can because on the market everything is possible ) be continued if investors will find another level to connect to the move - but connecting to the move means buy or selling by most of the investors in a random place which finally leads to randomly opened position. Professionals can distinguish better from worse levels but I wouldn't recommend it for beginners.



http://img90.imageshack.us/img90/756...14db86bd56.png
  • #25
  • Nov 1, 2012 1:17pm Nov 1, 2012 1:17pm
Hello!


I looked your discussions about the event driven trading.

There is of course the correlation between the upcoming news (events) and the current pricing.

Your charts with executed transactions are very impressive.

But the problem is that the price reaction come immediately after the publication of the upcoming news. No one is able the react in few seconds even having the excellent data source like Bloomberg or Reuters, what is very expensive and don't bring any kind of automatic execution.

The key for your way of trading should be the very quick order execution after recognizing of the news.

Nobody is trading in this way because nobody is able to do it.

What is your experience in this matter?
  • #26
  • Nov 2, 2012 2:04am Nov 2, 2012 2:04am
I m reading bloomberg / reuters...Stare at the most ecomonic data released. But I have found the biggest question about event trading ,that is I can't thinking an influence of event like a real trader in the Wall St.......So I made many mistakes to understand these data and entry so many wrong setups...
  • #27
  • Nov 2, 2012 6:52am Nov 2, 2012 6:52am
I don't think there is a big interpretation problem of data.

First we have to understand that in EURUSD case the EURO is the risky asset. If you have the good data form the economy both America and Europe it means the investors are choosing the risky assets - in our case EURO. But if we have bad news from America, what should logically make pressure for USD we have the opposite effect by choosing investment with lower risk - means USD. We have to expect the risk ON or risk OFF sentiment. In risk ON good news from America is Good for EURUSD.

But there is problem of quick reaction. There are many investing in the time of publication struggle like strategy (option strategy), making both long and short positions. The loosing position will be closed be SL and winning position continue to make profit until TP. But if the direction is unclear in the first seconds both positions are closed by SL.

For this reason the quick interpretation of upcoming news is the necessary condition for event driven forex trading due to the confirmation of the price development direction. Ideal solution would be a software for automated analysis of upcoming news giving trading signals. I believe the hedge funds and investment banks are using such a type of software for trading, but for individual forex traders there is no such a solution on the market.
  • #28
  • Nov 2, 2012 8:08am Nov 2, 2012 8:08am
Quoting DariusTrader
I don't think there is a big interpretation problem of data.

First we have to understand that in EURUSD case the EURO is the risky asset. If you have the good data form the economy both America and Europe it means the investors are choosing the risky assets - in our case EURO. But if we have bad news from America, what should logically make pressure for USD we have the opposite effect by choosing investment with lower risk - means USD. We have to expect the risk ON or risk OFF sentiment. In risk ON good news from America is Good for EURUSD.

But...
I trade XAUUSD pair, because this pair have a good fluctuation.But I find a question about XAU that the trend of XAU often be opposite with U.S. data.Such as the payroll data is increase, meanwhile XAU is rally.........How do I deal with it...thx
  • #29
  • Nov 2, 2012 12:31pm Nov 2, 2012 12:31pm
Choosing of right direction of price movement depends of risk OFF or risk ON sentiment.

I wrote about the positive influence of good USA data for EURUSD in risk ON situation. Today negative reaction for good payrolls data have to be interpreted as change for risk sentiment for risk OFF, probably connected with USA elections. It could be also other reason, because in the time of payrolls publication there was also the publication of the current unemployment rate, on the level as in the forecast.

Event driven forex investment gives the best profits when there is a separated event and in the risk ON sentiment. When we have issues like USA elections or Greece troubles or Spain bond auction or FOMC statement it is better not to invest, because the price direction after the news publication could be unclear.

I don't have experience with gold trading, but I see some currencies with better reaction in news publication time and some with lower reaction. Due to my observations CAD and GBP are better for event driven forex.
  • #30
  • Edited Nov 5, 2012 2:24am Nov 4, 2012 7:44pm | Edited Nov 5, 2012 2:24am
Quoting DariusTrader
Choosing of right direction of price movement depends of risk OFF or risk ON sentiment.

I wrote about the positive influence of good USA data for EURUSD in risk ON situation. Today negative reaction for good payrolls data have to be interpreted as change for risk sentiment for risk OFF, probably connected with USA elections. It could be also other reason, because in the time of payrolls publication there was also the publication of the current unemployment rate, on the level as in the forecast.

Event driven forex investment gives the best...
How do I judge risk ON or OFF? I usually get some information from Bloomberg / Reuters, but I find a question that the news getting from these websites is few......,except u r the payment users.
May u introduce some reliable news (event) resource website to me ?? Thx.
  • #31
  • Nov 5, 2012 7:19am Nov 5, 2012 7:19am
Hi!

Forex factory provides the economic calendar with news. There are two problems with forex factory news calendar - when the news are coming, your screen have to be refreshed manually and the second problem we have is the delay.

As a event driven forex trader you have to get data asap, due to the quick reaction of the market.

You can use the Bloomberg tv and set order prepared before if you recognise the actual figure. The forecast you can read from Forex factory economic calendar.

Ideal solution should be an expert advisor or some other software reading real time news and setting the orders prepared before publication of the news - like above forecast figure set long EURUSD or below forecast figure set short EURUSD.

I'm looking also for this kind of software if somebody knows.

Today I'm still using bloomberg tv and missing first seconds of market reaction i.e. missing profit.

What is your experience?
  • #32
  • Nov 5, 2012 7:37pm Nov 5, 2012 7:37pm
Quoting DariusTrader
Hi!

Forex factory provides the economic calendar with news. There are two problems with forex factory news calendar - when the news are coming, your screen have to be refreshed manually and the second problem we have is the delay.

As a event driven forex trader you have to get data asap, due to the quick reaction of the market.

You can use the Bloomberg tv and set order prepared before if you recognise the actual figure. The forecast you can read from Forex factory economic calendar.

Ideal solution should be an expert advisor or...
Thank u 4 ur answers. As my experience, I think that any economic data will have been digested ahead of time by speculators.For example, the QE 3 forecast of speculators had been rally XAU and XAG more in August 2012.
So in my opinion , I suggest judge the trend direction that is long or short a head time.
  • #33
  • Nov 6, 2012 3:18am Nov 6, 2012 3:18am
Quoting ppleng
Thank u 4 ur answers. As my experience, I think that any economic data will have been digested ahead of time by speculators.For example, the QE 3 forecast of speculators had been rally XAU and XAG more in August 2012.
So in my opinion , I suggest judge the trend direction that is long or short a head time.

This type of information is speculative because you don't know if QE3 will be announced before it is published. It is important information , you can see its longterm impact but you have to have a set of another rules to play it - single information like this is useless.

Here I proposed you the type of investment called event driven - I believe that the market is driven by information, that its leading direction is a cause of market publications mixed with hope and greed of investors.

But I personally use the fact that all information are in price and if some information is better or worse than expected I open position in risky assets or in safe heaven assets to catch the first possible rapid move after such annoucement because during macroeconomic publication market will try to find its another fair value ( everything is in a price so if something new appears market will find its new value) in a fastest possible way - why ? - because:

-no one is searching the market for opportunities except event driven traders - of course there are persons that set an EAs that try to make multiple positions, or set pending orders above or below price but they are only liquidity providers


- if no one is searching then there are no obstacles on the market in form of pending orders, market orders that could stop the price from fast move ( when market is moving very fast traders fear to open positions - market accustom for slow moves - and people are organisms that like repeatability, schemes and such move push most of you in a state where you cannot make your decision and just stare at the market when it is moving very fast from point to point. From point of risk the longer you have your position opened the bigger risk this implies so from point of risk such trades carry little risk as they are isolated from the market - nothing else impact the price except information during news publication.


- market become less complex because there are less ivestors making their decisions so it becomes more predictable ( look at the ff tab called trades - every single minute a new person is making their decision - it is BUY SELL BUY SELL - in such market when everyone sees something different it is extremaly difficult to make good profitable decision which would be REPETITIVE so it would make you constant not lucky profits )

Market cannot be predicted every single time but using my rules can help you to find your edge. When you select your market carefully, select information carefully you have usually two opportunities every day to play - is this a lot ?

For scalpers may be not but as I mentioned you before I think that scalpers are gambling not playing especially manual fx scalpers.

Even if 4 out of 10 opportunities will be losers you still have 6 winners and you have your edge and you can make constant profit. ( 10 points SL and 10 points TP )

The mode ( RISK ON / OFF ) can change from day to day and the day of change is unpredictable but markets pushed in one direction like to keep this direction, markets put into consolidation phase like to be in this consolidation. The same is with RISK. Market will keep its sentiment until another important data or annoucement.

If you see that market is not responding to data - stay aside and wait until it will continue to respect it - it will and all you need is patience. Market in its structure is reorganizing all the time. Sometimes it will respect 20 market publications in a row and all will be winners but sometimes it will be 10 losers in a row - the most imporant is that history likes to repeat - if there was no trend for a long period of time prepare for a long trend, if data was not respected for long period of time prepare for a long period of time when all transactions will be winners - for example this week - I am staying out of the market until the end of elections - I missed a few opportunities but I didn't lose as well.

Investment during news publication was not only tested by me but it was tested by time.
  • #34
  • Nov 6, 2012 11:24am Nov 6, 2012 11:24am
@ Event Trader,

The mode ( RISK ON / OFF ) can change from day to day and the day of change is unpredictable.

It seems that identifying the mode is the crux of the business, in event driven trading.

How to identify the mode just before the event or publication?
  • #35
  • Nov 6, 2012 11:36am Nov 6, 2012 11:36am
Which Geographical Time Zone do you live into?

This is very important to capitalize onto event driven trading.

For example, I live in USA in a geographical area that belong to EST (Eastern Standard Time) which means that, to make profit on any event driven movement in London Market, I have to wake up and operate the terminal window at 2:45 am in the night, making it extremely high involvement task. (London open time is 3:00 am EST in USA)

In spite of that, I have seen may occasions when, GBP/USD has shown tremendous uni-directional move that started at 12:15 am or 1:00 am and stopped at 4:00 am or so, making me lose a huge chunk of potential profits.
  • #36
  • Nov 6, 2012 1:02pm Nov 6, 2012 1:02pm
Hi!

I'm living in central Europe time zone. I agree, there is the time problem for some publications of economic news. For me the Europe news and America news are ok, but Asia (Japan, China) and Australia not. It is the natural limit.

About the risk ON and risk OFF sentiment I agree it is crucial for the business. But if the risk sentiment set up, the change comes not immediately. There are several days or weeks in the same sentiment. If you are doing transactions continuously in the same sentiment, you will win a lot transaction until you lose one in the moment of change of the risk sentiment. Last week publication of non farm payrolls in USA was the moment of change from risk On to risk OFF. After publication of very good figures last Friday EURUSD dived. My transaction lose, but days before every one transaction won. The total balance of last two weeks was in 9 transactions made and only one lose.

Now in the week of elections in USA you can not be sure which event is important. In the time like now, it is better not to place event driven forex transactions.

As a indicator of risk OFF risk ON sentiment you can use the movement of S&P 500 equity index. If the equity markets (S&P500) are going up it is due to my experience the risk ON sentiment. Market reaction after news publications gives you picture of the current sentiment. We have to observe the market reactions in the end of this week to see the sentiment for next weeks.
  • #37
  • Nov 7, 2012 7:36am Nov 7, 2012 7:36am
Quoting DariusTrader
Hi!

I'm living in central Europe time zone. I agree, there is the time problem for some publications of economic news. For me the Europe news and America news are ok, but Asia (Japan, China) and Australia not. It is the natural limit.

About the risk ON and risk OFF sentiment I agree it is crucial for the business. But if the risk sentiment set up, the change comes not immediately. There are several days or weeks in the same sentiment. If you are doing transactions continuously in the same sentiment, you will win a lot transaction until you...

Nice one. You have interpreted current sentiment correctly. Look at the price action at the moment. Sentiment must be followed by price action - it mean that after every important data publication market should react with data results or against it.

This week was election week and behind elections euforia we had a few very important publications. One of them was PMI for Germany - market didn't react on it even as many investor perceive it as very important and it was much below expectations. During Asian session we had a run for risk - I interpretted it as a last gasp of the bulls which blindly buy speculative information - everyone thought that after elections we should have a run for risk but these all were only speculations - real information were on the table but nobody wanted to look onto them and play them. We had a rally on Gold which I interpretted as stops being broken not fundamental rise - hard metals reacted only during elections and market was very thin as big volume players waited for results of elections these rise were only stops.

Today when the dust after elections has settled investors opened their eyes and started looking for real information not their guesses about who is better for economy. We had another important publication of German Industrial Production and one more time it was below expectations ( behind scenes there are talks about greece but it was not important this time ). Reaction was very intensive and we are 150points lower than in the morning. This is what does it mean to interpret sentiment correctly and play the data which as I have told you before has power to break technical levels.
  • #38
  • Nov 9, 2012 4:29am Nov 9, 2012 4:29am
Thanks EventTrader and DariusTrader for sharing their knowledges on Macro-economics. I had been silently enjoying the thread.

Btw, I am also trading my technical analysis with these economics figures daily, but unfortunately I am not economical educated, so I hope you guys dont mind me popping up questions to quench my curiosity if I ever came across any. From my experience on trading on events, its really easy pips, if it's technically and fundamentally aligned. Sometimes I played the "after event" effect which is safer and easier to pocket pips.

Keep going.
The only winner is the one who survive the longest...
  • #39
  • Nov 9, 2012 8:35am Nov 9, 2012 8:35am
Today, Friday Nov. 9th, 2012, the downtrend in eur/usd was started at 5:30 am GMT.

As per the forexfactory calender, the first important publication, today, was published at 7:45 am GMT, which was French Industrial Production m/m.

There does not seem to exist any correlation between this strong downtrend (started at 5:30 am GMT) and the publication (published at 7:45 am GMT).

Can anybody explain the reasoning please?
  • #40
  • Nov 12, 2012 4:05am Nov 12, 2012 4:05am
Quoting madefortrade
Today, Friday Nov. 9th, 2012, the downtrend in eur/usd was started at 5:30 am GMT.

As per the forexfactory calender, the first important publication, today, was published at 7:45 am GMT, which was French Industrial Production m/m.

There does not seem to exist any correlation between this strong downtrend (started at 5:30 am GMT) and the publication (published at 7:45 am GMT).

Can anybody explain the reasoning please?

Market was pushed in a downtrend few days ago and if it is in a downtrend a lot of proffesionals put their orders above recent consolidation ( in this case sell orders - They see it as a good opportunity to Sell - the most important is general direction - RISK sentiment ). Most of the people are trying to buy and sell in the consolidation and they get stuck with their stop orders above and below consolidation depending on the direction of their trade.

Market has a short memory but it still remembered about very bad results from German Economy and it wanted to find its best place to continue direction ( here I should write you something about market profile and where huge players build their positions but this topic is not about it ) - huge players pushed market only a little bit up and market, which in most cases look for a leader ( herd effect ), started to follow the direction ( break above consolidation ) - stop orders were triggered, people got out of the market, Franfurt has opened, volume has increased so if people were out of the positions there were a place to make a fast move to the downside. Market is not only fundamental - if it were , we would have 99% consolidation and only 1% of moves which are made during publications. But tell me what is easier to play ? Without huge knowledge about market dynamics it is not easy to catch the move - playing publications is a good alternative and it gives a confidence that there will be volatility which most of you should pursue it gives the exact time where there is a high probability of a breakout move - without knowledge you will get stuck with you positions, market will not have volatility, you will get angry, crossed you will close your positions with a small loss or small profit, you will have no idea about in what direction market will make its break or in the worst case market makers will catch your stop because you when you trade the market loose your individuality and place stop as anybody else what is easy to catch.
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