Bet not on the news, but on the impact the news could bring

Hi everybody!

I guess this topic has already been discussed around here, but because it is hard to to gather all information on it, and all points of view, I would enjoy to know what you think about this.

Put simply, I know that we / you all broadly think that to enter in the market before a moving event / news is a gamble game and highly risky...

But would that not make sense to not bet, when entered right before a news / event, or shortly before (could a few hours), on the outcome of the news, but on what moves could be created from the effect of the news.

Ex.: the effect of a news can have a simple impact, sometimes very violent, but sometime without any real long term implication. Indeed often the price reverses its course, start to go nowhere, etc.
But if we combine that if the outcome of the news is x, then it could bring this market to x. To combine the effect of the news and to then be pushed on a much bigger move.

I know many of you, while reading this lines, must think "so why not enter right after the news...?"

And the answer would be simply because very often the reaction is quick as light from other participants, who have much better execution capabilities and technologies.
So it reduced considerably the odds to profit form a favorable move on our side. And by playing the "game" as I am exposing now, it could permit one to still play the game while enhancing the odd, simply by entering before the big participants.

But again, I am not saying to gamble and bet on just the news, but ti figure out that when a market has a good dynamic, and if we understand that the move could go further, when a news is released that could have favorable impact on this move, then we can take the shot to enter a bit before the event, or even right before, depending of the case / scenario.

While common wisdom say it is gambling, I believe at some level, it is still a way to play the game, if done carefully and with a good understanding on how it works, and how to figure out the big picture.

What do you think?

Thank you to read this few lines,

Alex

i agree with you on the main ideas but the biggest problem is that sometimes, the news will change the market sentiment so it will go to the other side. In this situation, technical indicators don't work, and I'm thinking how to check if the market sentiment have changed or not. Any ideas?

First, thank you for your post.

There are several answers to that point.

A. A rule of thumb is that a healthy market reacts positively to good news, and negatively to bad news.

B. A market which is not anymore in "harmony" with fundamantals will react negatively to good news, and positively to bad news.

C. If one is looking to trade an element / news / trigger regarding of a fundamental picture, as long as the event / news is good enough for the participants, then the price should react correctly, even if sometime slowing down, but still keeping on its way.

D. Lastly, if one is looking at an event / news, and if this news does not confirm the "big picture" , and if the price is not behaving correctly, sentiment or not, it would be better to get out.

Cheers,

Alex

Thanks, so let's think keep it on practise.How do you understand the EURUSD gap?The news was known on sunday, and the gap appears on monday due to this news. So what now?During may and June, the pair were in range and in goes down, now it's trying to recover the gap (and I think it will) but the matter is that tomorrow, the greek government won't pay so what will happen?If I'm trying to follow your ideas, the EURUSD is not in harmony with his fundamental anymore (as he is recovering it's gap), so foor tommorrow, a bad news expected will send the pair higher?Thanks for sharing

OK, so the gap of today has maybe a fundamental implication, and maybe not.

I mean by that that maybe some participants sold EUR as early as they could, believing that EUR could keep go lower as soon as possible, or maybe some participants were believing in a relief rally for EUR (up) but as soon as they understood an agreement was out of sight, they got rid of they EURs... or without real intent to own EUR (on a speculative basis) for an eventual agreement with Greece, some participants covered their risks following the news of this weekend.

Can we think that because EUR is trying to go higher following the gap, we can think that it is an invalidation of the fundamental which bring EUR lower...? Probably not, because of a few reasons:

A. Following a gap, the price often tries to close the gap, even if after it keeps going lower.
B. The EUR going higher is also a mirror of the participants covering their long positions on European stocks (when they buy stocks, they sell EUR...)
C. On a fundamental view, EUR can go lower any ways, one because once Greece settle, participants will reload their long positions on stocks, and short positions on EUR, and because if the situation worsen with Greece, they will also sell EUR because of the risk, even if they first try to buy some.

To come back on the point of this post, what we will look for now, is any trigger which could start again the sell of EUR if we see the price of EUR pairs / crosses acting the right way. Euro zone inflation tomorrow could be such a trigger, but it is not certain.

What I think also, is that fundamental concepts are not best played in a political turmoil / stress time. It is better to play it when there is not such events disrupting the whole market and participants behavior.