Originally posted at forexfactory on April 10, 2011:
Now I would say that it could have been anyone of these reasons however the one that stood out to me was number one. I’m not really certain about how I could use this to generate an entry idea but it certainly could come in handy. If we saw the market react in a negative way to what would could be classed as a positive release then couldn’t we say that the Specs had high expectations but they had overestimated on how strong the pair actually was. I hope I’ve explained this clearly. Another example may be where we have several sets of negative results…
Well I am not necessarily going to try to figure out what % is speculative vs hedging vs other things. People interpret things in different ways.
I just care about what will move the market. What market participants or combination of market participants will move the price. That is the beauty of order flow trading. Either you know what will move price, or you do not know (other way is to get lucky).
As for that old aud/usd home loan release, If I remember the correctly the answer was number 3 – that the market was not sensitive to that particular news item, so it generally did not matter what the number came out was, aud/usd wasn’t really going to move. Now everyone interprets things in different ways so some people might disagree with me. Thats what makes a market. One person thinks this might happen, the other person thinks the opposite is going to happen. Who is going to win? Whoever truly knows what will really generate order flow and move the market and positions themselves appropriately.
As for how you can use it to generate entry idea. You could say if news release number is above/below “x” number you buy/sell. Most people don’t know of the concept of sensitivity. They think a certain thing will move the markets but it does not. Then they scratch their heads as to why. Most people screw up and don’t know what the market is sensitive to. Even order flow traders can screw it up. Even I do occasionally. Now the people who are trading off moving averages and technical indicators screw it up all the time, because the market does not move off moving averages or stochastic, so they have zero chance of actually nailing why the market moved or will move.
As for if you have a set of negative results but the market fails to move, that can signal signal that the bigger players have different opinions, OR, it can signal that the market did not care about those news releases to begin with. The markets sensitivity to that news, or series of news may have been low/minimal, so therefore any movement you saw was noise and not related to the news.
Yes the market tries to price in things many months from now. But those expectations can change on a daily basis. They may think that a central bank may hike in 6 months, but their expectations do not stay the same every day for the next 180 days. Expectations change, sensitivities can change, which is why you get up and down movements.
The market gives you order flow examples every day. At the end of the day get all the data and information together from IFR, forexlive, and the financial news websites, forex news calendar, and try to figure out why the market did what it did. Sometimes it can be one major thing, other times a combination of things. Sometimes it can be as simple as stops tripped, or as simple as profit taking. Other times it can be more complicated.
The information that I use to make decisions, everyone has access to them. I am sure there are 100,000 other people viewing the same information as me. The skill and profit lies in knowing what is important, when it will be important, timing the trade, and structuring it properly. Having a good order flow mindset helps.
Everyone starts the day with the same information. It is what you do with it that counts.