A question about the impact recording method, if I’m not mistaken, our goal in recording the first minute impact is to find out what the market is sensitive to / not sensitive to right?
Now, if a news comes out and has none or little first minute impact, it doesn’t mean that it doesn’t or won’t affect the currency later on but it’s just not what the market is focusing on right? Like some Euro news (French growth numbers for example) may not have a huge first minute impact but may still push the Euro lower through a worsening sentiment or something?
Also, I noticed that some news like the UK Manufacturing PMI are sometimes released 2 minutes earlier to Thomson Reuters subcribers, what time do you use to record the first minute impact and trade in those cases?
As you know, Oanda has unfortunately stopped to allow trading during the weekend which is sad in itself but also I was happy to because I could see what the early trading looked like and sometimes I thought it was holding some clues for the rest of the day/week. Do you think the early highs/lows printed in early trading are valuable information or not? If so, are you aware of any free charting platform that shows early prices? I know I can still find them through IFR or sometimes Forex live but it’s just easier to have it on a chart.
I see some differences between the forex live and the forex factory calendars, especially in terms of forecasts, which one is better? Or is there a better one out there?
In the Mastery Course, beside their risk-on/risk-off effects, there is little information on the bond market and how yields/yields differences affect the currency markets, (unless I have missed it). Is it because you don’t think it is useful to keep track of them? Or because it is hard to profit from it? Now I’m not talking about Spanish yields blowing out and causing risk aversion but for example I used to read that U/Y is very sensitive to the US/Japan 2 year yield difference, or recently from Bloomberg I got this:
Investors have sought the dollar against the euro as short-term interest rates have swung to the U.S. currency’s favor. “Front-end yield spreads between the euro zone and U.S. have moved measurably against the euro for the past month,” Robert Lynch, a New York-based currency strategist at HSBC Holdings Plc, said in a telephone interview. “That’s after having moved measurably in favor of the euro in the prior two months.”
The news impact recording does many things:
1. It tells you what information and scenarios the market is currently sensitive to. This helps you to focus on the information and scenarios that could actually move the market. Like if the money supply numbers come out way beyond forecast and the currency doesn’t move, then you can reasonably assume that the market is not sensitive to them, that the market doesn’t care about that piece of information, etc. It helped you to focus on the truth about what can move the market.
2. It gives you indications about what the positioning is of the market participants. For example, lets say a currency pair is in a big uptrend, and with your analysis of the news and information flow and deviation from forecast, the currency should move 100 pip to the bullish side. But when the news comes out the market only moves 50 pips to the bullish side, then reverses all those gains. That can give you insights into the positioning of the market. The market may be overbought and prone to a correction.
3. It helps to locate sensitivity shifts. With trading, you want to be able to stay abreast of what themes/scenarios are moving the market and what new themes/scenarios can come into play. You want to be able to assign macro meaning to the volatility movements that you see on your chart. Don’t just settle for a moving average or stops being tripped or barrier explanation for a 100 pip move. Find the expectation repricing. Find the reason rooted in news/sentiment/fundamental/macro order flow, etc. You want to notice the sensitivity shifts that occur to figure out when a scenario that was previously dormant can come into play.
4. You can use it as a standalone system. There are so many different types of news trades that you can use to extract profit from the market.
5. You help it time your other trades. If the market is taking good news to rise, then you can use that as a signal to only take long trades as an example.
Check out or review this lesson: http://orderflowforex.com/how-to-use-news-trading/
I make a distinction between a news report that is NMI, and which news reports may be NMI for the news spike (or only small news spike), but that trigger a sentiment shift for the day. For example, there may be a news that comes out that is NMI, or whipsaw, so I want to avoid trading that. But there could be another news report or piece of information that might be NMI for the FM, or maybe its only a small move of 3 or 5 or 10 pips, but that I can reasonably assume that the market moved according to that report and set a sentiment shift for the day. If the news did not move the market and did not set a sentiment shift for the day, then I will tend to disregard it.
Of course you need to check the deviations from forecast numbers. There are many types of news that could move the market a lot, but they don’t because the deviation from forecast was not big enough. Then there are other types of news that will almost never move the market no matter how big the deviation from forecast may be. You need to distinguish between the two. You can do that by recording the news over a long period of many months and seeing how the market responded to different deviations over many months.
I suppose it is possible that the market may “remember” a news that was released days or weeks ago, but usually that “remembering” occurred because of a fresh piece of news or phrase that caused the market to focus in on something that happened in the past. In which case I would focus in on the new reason and catalyst on the current day that caused the “remembering” of some past event.
You are correct that some news is released at a different time that was is shown on a forex calendar. Some news may be released a few minutes early or later, etc. In which case I need to do additional research to find out what the actual release time was. Usually the Oanda IFR news reports the proper news time and I use that. So in the case of the UK manufacturing PMI released last Friday, I would use the time two minutes before the schedules release as the “FM.”
Oanda did stop weekend trading, which I guess rendered my weekend inefficiencies lessons a waste of time.
You ask an interesting question about the highs/lows printed in early trading during the weekend. Don’t be sad! I personally don’t take them into account. I am not exactly sure where they got those early prices from. I don’t think it is at all necessary for happy and successful trading.
Theoretically, since forex is an over the counter market, transactions can take place over the weekend between any two willing counterparties. However, most don’t do that because they may have an inability to hedge their exposure, and the other side that wanted to initiate the transaction could probably get better prices if they wait until normal market hours.
Personally, as I was creating the mastery course, I wanted to move away from placing trades and trying to exploit the non endurable and non scalable inefficiencies. I hoped I conveyed that in my writing. The greatest trades, the happiest trades, the easiest trades of the past (and of the future) did not take advantage of the non endurable and non scalable inefficiencies. The greatest trades, happiest trades, and easiest trades took advantage of the lifetime enduring and scalable inefficiencies. It is just a matter of attaining the right beliefs, mindset, habits and interpretation advantage to take advantage of them.
I just use the forex factory calendar forecasts most of the time. On rare occasions, I may have to try to figure out the proper forecast using multiple news sources and watching the shifting forecasts over several days. But in most cases, if I have to do that, I will just not trade that report. No sense taking a loss when the forecast is all over the place and there is not a clear divergence from expectations. There are far easier and better trades to be had.
I too had a lot of uncertainty and confusion about bond market and yields/yield differences affect the currency markets. In writing the mastery course, I had to confront this uncertainty and decide what to do about it. In the end I decided to avoid talking too much about it. Or perhaps I don’t have anything about that in there. I focused on the information flow, expectations, news, sentiment, macro, scenarios, sensitivity, etc.
I want order flow and volatility and scenarios, etc that I can profit from. I want them to be easy or relatively easy to understand them. I want concentrated, aggressive, massive, and identifiable order flow and volatility. If someone is executing trades for 100 mil here and 100 mil there in the currency markets due to bond yields and it is scattered and I cannot identify it and figure out how to profit from it, then what’s the point in spending time on it?
There may be some people doing such bond yield analysis. Perhaps some mathematicians or academics use such things. But I do not know how to do such things. I focus on what I believe is true about the market, and what I have learned from my experiences and studies of some of the top traders. Of course, you may study them and come to different conclusions, but I am here to share my own best insights and voice that I can give you.
That is an interesting example and snippet you posted there about the EUR/USD. I suppose that could be one potential reason why the EUR/USD has gone down. If you can find a way to make it work for you, then by all means go ahead. You may see something I have missed. You may add your own flair, feeling, or judgment.
As for other reasons why EUR/USD has gone down, according to my mastery course and my own logic and macro thinking, various other reasons include:
- Slight verbal intervention against strong EUR
- Draghi said deflation risks possible if EUR stays too strong
- Bad economic data out of EZ periphery and France (adding to case the EUR is too strong and hurting growth)
- Italy elections
- Lower inflation numbers out of EZ
- Higher risk of ECB rate cut
- Better economic data out of US (stronger economic growth)
- Prospect of Fed tapering QE purchases
That is my interpretation for the drop in EUR/USD. You may prefer the “ front-end yield spreads” explanation. Whatever works for you.
Take another example of the drop in GBP/USD. If you look at central bank rates, the GBP is at 0.50% and USD at 0.25%. Those haven’t changed. The 2 year US treasury is yielding 0.23%. The 2 year UK gilt is yielding 0.24%. Both US treasuries and UK gilt yields have risen because of the risk appetite and people selling bonds over the past few months. Yet the GBP/USD still dropped over 1,000 pips. What gives?
I suppose you can try to look for the yield differences and do research on that. Or you can do some macro analysis and notice the following catalysts:
- Weaker UK economic growth
- Prospect for more QE from BoE
- BoE may tolerate higher inflation for longer
- Stronger US economic growth
- Prospect of Fed beginning to taper QE
Perhaps the yield difference plays a role in the USD/JPY more. I do know that sometimes when US bond yields rise and look attractive, people bid up USD/JPY as some Japanese participants want to snap up the higher yielding US debt. So if you want to pursue that path, you more certainly can! Or you can just find the macro expectation meaning with:
- Abe calling for more QE and BoJ delivering by end of 2012
- Abe choosing more dovish BoJ governor that wants to QE more in 2013
- BoJ raised inflation target
- General risk appetite
- Stronger US economic growth
- Prospect of Fed beginning to taper QE
Those above scenarios unlocked all that capital sitting on the sidelines to buy up USD/JPY and cause the 1,500+ pip movement. The battle of different scenarios at work.