When market ignores fundamental events

Hi, again. I am glad to be back from my short holidays and continue writing about trading. Today I want to continue talking on the topic of news trading. The post will not be long, but I do expect it to be useful. I want to talk about a phenomenon of ‘ignoring the news’. It is a regular behavior of market movers to ignore good news and continue selling or ignore bad news and continue buying. In a trend this is a sign of a strong trend. In a range it is a sign that market will go in the opposite direction than the news should push it to. 

Please also read my other articles on the same topic:

10 essential rules for trading Forex news profitably

My top 3 news releases
Trading economic events BOA rate decision
More on how to trade fundamentals 

Short lived momentum reversal trading strategy

Example with eur/cad and Canada GDP data release

Let us take an example, so that it would be easier for us to understand the behavior of market ‘sharks’ that are not pushed by any news, but can deliberately push prices where they see them fit to go. On Tuesday, April 30^th (2013) Canada GDP was scheduled to be released at 12.30 GMT. The number was expected to be better than previous month. And it did come better. To tell the truth it came better than expected. Most currency pairs fell to Canadian dollar. However, Euro, Swiss Franc and British Pound resisted. In fact, after about 15 minutes eur/cad went up for about 50 pips and cad/chf fell the same number of pips. gbp/cad basically stayed at the same level. How do you interpret this?

Market ignored good data from Canada in European currencies, because it was ready to buy them against all other currencies across the board. Market wanted to push European currencies upwards and it did just that. Now, how do you know what market wants and what it doesn’t? Well, you look how it reacts to fundamental data. That is a general principle how you should evaluate the short term tendency that market may about to develop. The data that Canada released should have pushed all currencies lower against loonie immediately. If it failed to it against some currencies pairs it simply means those currencies are backed up at the moment and you’d better sell CAD against these pairs. 

You had some 10-15 minutes after the release to make up your mind how to do it. I already had a pre-defined place for my entry, stop and exit for both pairs. However, I decided to trade only eur/cad pair for the event. I did not want to double my risk by trading both eur/cad and cad/chf, so I took only eur/cad. It usually covers bigger distances than cad/chf and this is primary reason why I prefer it to Franc pair.

Why did I look at these pairs in the first place and why I was considering selling CAD, not buying it? I talked about the methods that I used to be bearish in my previous post. I tend to look at technical structure of a currency pair before the news. If it looks bearish I only place a sell order. If it looks bullish I only place a buy order. I believe that smart money always knows where it wants to go and it positions itself for any kind of news good or bad and trades accordingly. So, it may sell on the good news and buy on the bad. This is how financial markets work. 

I saw bearishness in Canadian dollar in eur/cad and cad/chf pairs. eur/cad was lingering near support prior to the news and cad/chf was doing the same stuff near resistance. Cad had already rallied against the two for about two weeks. I noticed that under these circumstances you better look for a reversal rather than continuation of the move. And that’s exactly what happened. Canadian dollar fell against Euro and Franc. I was selling the loonie (and I am still on the short side with a small position). 

How? Look at the 15 minute eur/cad chart below to see that. You should see 123 reversal pattern there. The pair went to form a bottom at 1.3203 (that is 1), it then rallied to form a short term top at 1.3234 (that is 2). It then went to visit previous low and failed to break it at 1.3205 (that is 3) and then the pair broke 1.3234 level 10-15 minutes after the news was released. I went long together with smart money. I tend to exit before even numbers, so I exited my trade at 1.3290 level (ten pips before even number (as usually)). The good part about this trade is that market gave us time to place orders and run together with it. At other times you simply have to place your orders (or just one order in one direction) 2 or 1 minute before the news comes out. And if you are right you might make really nice cash on your news trade. 

Ok, I will finish on this happy note. Be sure to read related articles to learn more on my news trading method. I promise to expand on this in my future posts. 

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

http://www.etoro.com/A41516_TClick.aspx 

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

More on how to trade fundamentals

I promised to write on the topic how to select the best candidates for your trades in my last post. However, I see that I have a shortage of time and will not be able to finish it this week. Besides, I have written a few posts about it and do not want to repeat myself too often. So, this theme will be dealt with in my future post. Maybe I will collect my thoughts and post an article on that next Tuesday. Today I want to add a few thoughts on how you can trade Forex news releases. I wrote a lot on the topic too, so this will simply be an addition to what has been written. Be sure to read my post on the topic with specific rules for trading these macroeconomic events.

With time this strategy of mine has evolved and I use more freedom in trading the news. I often skip even those events that are of high importance if I do not like the technical structure of the currency that should be affected most by the upcoming release. I do it, because I see that not all events (even of high importance create volatility and move prices sharply). 

So, with time I tried to incorporate more of technicals to this fundamental way of trading. I got better with this specific strategy and want to share just a few thoughts about it now.

When you are through reading this article read my other articles on the same subject:

10 essential rules for trading Forex releases profitably

My top 3 Forex fundamental events
More on how to trade the news
Economic data trading BOA rate decision

Short lived momentum reversal trading strategy

Watch also a few videos of mine on how to trade fundamentals:

My technical preferences

I like trading news when currency pairs are stuck in ranges or are consolidating. This creates a much bigger chance for a breakout. If you see a consolidation pattern or a narrow range of a week or more you can be sure that the market has lost momentum and direction and is waiting to be pushed by some fundamental factors. It often happens when news comes out. 

I monitor around 27 pairs every day and know what state they are in at any given time. I wait for the prices to stall, lose direction and start ranging. I also like when those ranges are very small 150-250 pips in size. After staying in this pressed state currency pairs then explode one direction or another. 

Some pairs are known for their natural tendency to stay for longer periods in ranges than others. Canadian dollar is one of them. If you look at the chart of cad/chf pair from the 1^st of March till 25^th of April (2013) you can clearly see how it loves these small ranges and you can also see how it leaves them with explosive moves. The areas that are marked by ellipses indicate moves that were pushed by some kind of news. That’s how Forex pairs leave their ranges or move sharply within them. You want to take advantage of that. Wait for important news from Canada and see what happens when it is released.

Another thing that I have noticed is that when pairs are in larger ranges they tend to move from the very top to the very bottom and then back. They might stop somewhere in between, but tendency is always to seek top or bottom. So, when prices reverse at the bottom they often move up even if the news that comes out is negative. It means market has caught tendency and is shaking off the news. That is a feature of a trending market. 

Knowing this I often place my order only in one direction now. If you have already read my other article on forex news trading you know that I often place buy and sell stops on both ends of four hour chart or use other time frames to position myself for whatever direction market will take after news is released. I tend now to place order only in one direction: in the direction of a tendency that market is going on at the moment. I also place only buy stops when market is at the bottom of the range and sell stops when market is at the top of it. 

One more thing that I want to see in the price action before the news is released is some bias: bearish or bullish. I am sure that the ‘smart money’ is aware of the upcoming direction of a given security (or may even know what news will come) and it is taking position in advance by either accumulating or distributing. When I see that I know that market is positioned for the news in a specific way. Most often than not it does take that direction when news is released! This is another reason why I often (now) put only one order (in one direction) before the release comes. What happens if the market goes an opposite direction? I just skip the move and wait for another one. If you do serious analysis you will see that there usually is at least one big move (often more) during the week where you can make nice money. So, if I missed one move another move is around the corner. Do not worry about the past, think how you are going to use upcoming opportunities. 

A good example illustrating my point would be GDP data from Great Britain today (25^th of April, 2013). If you look at eur/gbp pair price action starting from the 17^th of April when a high in an up swing was made. Right after that the pair started making lower highs and sort of descending triangle was formed. A few attempts of bulls to go up were met by strong bearish pressure and price went down till finally news came out and eur/gbp collapsed. Therefore, I positioned myself only for bearish eur/gbp price action and placed only one order which was a sell stop. And down the Euro went!

Ok, I want to stop there and leave other insights regarding news trading for the future. This topic is definitely not finished. Get ready for more. Have a nice weekend and see you soon.

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

http://www.etoro.com/A41516_TClick.aspx 

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

My 3 top Forex news releases

I have written a lot about importance of Forex news in day trading. These events give us day traders a lot of opportunities to make a lot of pips quite fast. Of course, news trading is pretty risky and requires a lot of patience, practice, experience, very strict money management rules and ability to make decisions fast when things go not as we have planned. In the article I want to single out those Forex news releases that are my favorite. 

First of all, I want to say what criteria I have for news releases to trade them. If you look at the schedule of those events and then look at market reactions to them, both before the release and after the release you will quickly notice that some events have very low importance, some have medium importance and yet others have very high importance. The latter are in my area of interest. 

Big movements in securities are necessary for money to be made on these news releases. These are not often, but when they happen you are rewarded for your patience and discipline. 



If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!
http://www.etoro.com/A41516_TClick.aspx 

So, which news are top? The answer may differ a bit, but for me they are as follows:

1. Non Farm payrolls. The release has been quite a sensitive area for most traders as the state of US jobs are one of the main ways to see the state of the economy of the strongest country in the world. This event causes a lot of volatility in all markets, not only Foreign Exchange. I still remember times when the news would cause currency pairs move hundreds of pips in a matter of a second. This has changed, but from time to time history repeats itself. Be aware of that!

2. Interest rate decisions from central banks. These may not always have immediate reactions, but reactions will be in a matter of a few days. There might be a few decisions the same week or even day, so it is better to wait till all of them are announced and only then place trades. Markets often become less active before the announcements and volatility increases in the first hours after the release or in the next two days. When this news is announced around important support or resistance levels you might catch a nice reversal and make a swing trade that might allow you to get 1000 pips or even more. 

3. GDP from around the world also is an event that will have strong impact on the markets medium term. Again, the reaction may not me immediate, but as the market digests the data that is releases it will eventually move one direction or another. You will simply have to go with the flow.

I hope you will take time to watch what happens when these news events happen and learn from the experience. Hope the post was useful and interesting too. 

For more on the topic of Forex news read:

10 essential rules for trading Forex news profitably

Top 15 Forex trading strategies for profit

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.