When market ignores the news

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. 

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!

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Related posts:

10 essential rules for trading Forex news profitably

My top 3 Forex news releases
Forex news trading BOA rate decision
More on how to trade Forex news 

Short lived momentum reversal trading strategy

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.

Short lived momentum reversal trading system

I hope you have seen a lot of times some currency pair, stock or commodity rally (or go down) one day and then reverse the next day and end up at the very place where it started the rally (or move down). This kind of price action is very common in financial markets and they have a clear reason behind this as well as a way to trade this and make nice profits. Today I want to talk about the way you can trade this short lived momentum when prices reverse after a move that is usually driven by some fundamental news. 

If you want to make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro. 

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

A much better than expected news might trigger an immediate rally upwards, but if that piece of news does not really add to the longer term change for the positive in a currency, stock or a commodity that rally will be short lived and a reversal will ensue the same day or the next one and the security will come back the exact distance it went on the heat of the news to the very place (price level) where the rally started. Only those pieces of news that have longer term impact cause price leave there current ranges and go to new levels without looking back for a considerable period of time. The price may come back to the level of breakout, but if the reason for price move has very strong reason behind it, the price will continue its� course sooner rather than later. 

Short lived collapse in New Zealand dollar

However, there are a lot of short lived momentum moves each month and even week that you can capitalize on. Let us look at a few examples now. The first example is with New Zealand dollar. On the 13^thof March (2013) there was an important event for the kiwi. It was interest rate decision. That is a very tradable event and prices can move severely when the news comes out. That is exactly what happened this time. If you look at the chart below you will see the gap on the chart (down) as the kiwi collapsed after the news hit the wires. However, you can also see that the reaction to the news was really short lived and nzd/usd pair reversed the next day and continued going up on the third one when it reached the point when the pair started collapsing. Everything that was lost when the news came was gained back as the market digested the impact it may have for the future.

We do know that the chief of the Central Bank of New Zealand made some dovish comments regarding the rate of the kiwi and his willingness to see it significantly lower. We know that this kind of action can purely be attributed to the so called �currency wars� which is a prevalent theme in the markets nowadays. However, as most of Central Banks are trying to do the same the market starts ignoring this game and pays more and more attention to the real economic numbers rather than �currency wars� type of talks. 

So, when you see a currency pair or commodity or a stock go down (or up) watch what happens the next day. Be ready to see a reversal if the reason behind the move was not a strong driver. 

Data that has longer term impact causes prices to continue in the same direction next day

A completely different picture can be seen when New Zealand GDP numbers were released. Much better than expected number created a move that was not followed by a reversal next day, but did continue. This news has much bigger impact on the markets than some fundamental data which is very changeable (like retail sales) and may not have long term impact on the economy. So, if a reversal does not take place after the strong move you may expect and also trade a continuation of the move. 

Short lived Euro collapse after news from Cyprus

Another case of a short lived momentum move is based on the most recent trouble in EU � the Cyprus case. If you remember the action that Cyprus took when it decided to tax all accounts in order to secure a ten billion Euro loan from Europe. The market was shocked by the news and Euro open with a gap down after the weekend on Monday (17^th of March 2013). 

Let us look at eur/jpy price action for the event. Market gaps down around 300 pips on the open. However, Monday came and market went back where it came from wiping out all the Euro losses on the news. Why? Because market expects the problem will be solved in the nearest future. Yes, I do believe the problems in Euro zone will become uncontrollable at some point and some countries will face bankruptcies, but market does not look that far and it is ready to take risks as bigger profits are where bigger risks are. So, do not be surprised by seeing such illogical price actions in the market when one day you have a huge collapse and then a reversal that pushes the price to exactly the same level where it came from. These kinds of news have short lived momentum. You need a bigger catalyst for prices to continue dropping beyond initial news announcement. 

It is much more important whether the Central bank of Europe increases its� stimulus like the FED does or not. Of course, if this kind of action (as Cyprus did) was done by Spain or Greece market would have reacted more wildly and that could have led to more prolonged collapse in Euro, but as long as no country in EU announces its� bankruptcy these kind of events will have short term impact and you can always trade reversals next day. 

P.S. I do think that Euro has run its� course and will collapse soon, especially against Japanese Yen. So, watch Yen pairs, because a trend can change any time now as those fail to take previous peaks for some time. 

So, I hope you understand now why we see such illogical choppy price actions regularly in financial markets and you do know how to trade them.

Ok. 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 make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro. 

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

See also my previous post: How to make money in trading breakouts

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.

Trend for 3rd of June 2011

Trading week is over and let us look at price action in currency markets today. It was a big day, for the data of Non Farm Payrolls came out today. You have to mark this event on your calendar and always be ready to take advantage of the data as well as be careful trading it. I remember my early days in trading forex market. I started by trading news, but as I did not know much about trading and managing capital I had to go through a lot of bitter experience. I very clearly remember myself trading my first Non Farm Payrolls event having just a few weeks of experience on a mini account with Refco broker (bankrupt now). 

You must have noticed that occasionally market starts moving one direction before the news and when it comes out it jumps into the opposite direction. That�s what happened with me that day. My sell order was opened and after about 10 seconds the market exploded upwards. Platform was not able to close the short order and I was sitting there desperately trying to close it manually. Fortunately, I was able to finish the day at breakeven by closing the sell order and opening a long one. This also taught me a lot about risk and capital management. If you want to trade the news you will have to be ready for a lot of problematic situations that might happen when news is released. I will talk about them some time in the future when I write a separate post about news trading. 

I would say that if you a news trader today was a turbulent day for you. It does not mean you couldn�t have made any money, but you would have probably experienced a �whipsaw�. If you opened 1 minute chart you would see how the price in eur/usd, gbp/usd and other similar pairs jumped up (meaning your long order would have been opened), then after two minutes the prices started going down and reached the other end of the range and below it (meaning your short order would have been opened). Then the price again reversed and went upwards. Well, if you traded gbp/usd you might have probably avoided this, but eur/usd would have done you just that (two orders opened and then closed). I view it as a pure manipulation done by �big dogs�. 

Anyway, if you do trade news you have to play under conditions that you have and one of the ways to play this situation is to put buy and sell stop order again (after the first ones are closed by market). So, let's say you traded eur/usd. Your long order was opened and after a few minutes stop hit. Then your short order was opened and after a few minutes the stop for the order was also hit. What do you do? You again place long stop order above the most recent high and sell stop below the most recent low. This kind of behavior would have put your trading today on breakeven. I cannot show you the charts yet (problems with computer) but you would have placed your second set of orders in this way: eur/usd (buy stop order at 1.4535 and sell stop order at 1.4445). Your long order would have been opened and you would have probably closed at a round number of 1.4600 (a few pips below that). That would have left you at breakeven. I hope you had some profit today though. 

That much for today, I am going to write on some technical aspect of trading tomorrow. I hope I will be able to include some charts tomorrow. See you.

Read my previous post:

Pound and silver

Disclaimer

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