Just following on from your recent answer regarding trades near impossible to lose, I am building confidence in taking news trades as you have described in your course. If you have sentiment behind you and the news comes out better than expected for your currency, you usually get some follow thru. Also if sentiment appears neutral and you get a much better or much worse result than expected you can also get follow through for a good trade.
These trades are nearly always quickly into profit with little drawdown.
In my case i am following the A/U so i am interested in aussie announcements as well as chinese and US announcements.
However, during times such as in the european session when there are no announcements, I often see the A/U moving sharply for no apparent reason. Some commentries may say it is due to general $US strength or risk aversion or risk appetite etc. My question is therefore, how do you trade this kind of movement. I really don\’t want to go back to looking at price action to capture these movements when there is seemingly no catalyst(news) for the move. Do you actually look at capturing these moves or just stand aside and wait for a movement you understand.
From having switched from a price action mindset, to a mindset more based on order flow, information flow, expectations, scenarios, etc, this has made me flexible to place a trade anywhere and at any time. As you said, there can be times where there is no news, and therefore, you don’t have any immediate news impact to guide you, etc. Does that means I only trade say the AUD, during the AUD hours and when AUD and CNY news comes out? Not necessarily. Again I remain flexible, so I could trade AUD during the AUD hours, or perhaps place a trade in AUD/USD during late Europe or NY session.
Nor do I only limit my trading of the GBP during the European session, etc. For example, the GBP/USD had an intraday bottom last Friday around 1.6620 in the European session, then posted an intraday top in the NY session. GBP/USD broke through 1.6800 barriers in the previous Sunday session, before dropping back down. So there can be interesting trades at all sorts of different market hours.
So now the next question is, how do you trade without the knowledge of immediate news and news impacts, etc? Is that where you were going with the question?
I don’t want to sound like a broken record, but it can be worth repeating, both for you as well as for me, because I certainly do need reminders from time to time! Without immediate news, I fall back on my macro model, the market sensitivity of prior news, and the information flow I have labeled on my chart.
I say, given all the information flow, how the market has been responding to news, should I chase top tick of the day and buy it, or not? Should I chase bottom tick of the day and short it or not? I label the stops and barriers where appropriate. I say this news came out a few hours ago or a day ago, and the market responding in this way. But are there any potential future macro implications that the market is not pricing in correctly? Part of it is looking for deviations of the price from the information flow.
For example, on GBP/USD last Friday, before the UK news came out, the macro model was: DO NOT SHORT BOTTOM TICK and DO NOT BUY TOP TICK. So I knew not to chase moves in either direction. I don’t think I played any currencies on Friday, but you could tell the GBP/USD was sold out when it hit 1.6620 lows since it was selling off into the news, and the macro model of the past week was DO NOT SHORT BOTTOM TICK. And when GBP/USD rallied above 1.6700, I knew not to chase it, since the strong GBP could remove some of the hawkishness of the BoE, and there was poor retail sales data earlier in the day, so why is the GBP rallying? (Although, the GBP/USD rise could have been more USD weakness related than GBp strength.)
So that is kind of what I try to do. I do use the news impacts and record them and they form a very nice guide. Then beyond that I try to visualize, if I am long from the highs of the day/range, is that a good trade? What scenario would have to occur for it to be a good trade? What is the market pricing in currently and what would have to happen in the near future? Same for shorting bottom tick, etc. Or at any market moment I am thinking those things. They don’t just have to be when the market is at the top or low end of the intraday or past few days range.
I think I tried to play the long AUD early on Sunday after the better China numbers, and the market just struggled to rally and I got out around break even a few hours later. So that gave me a clue not to go buy the top tick in AUD/USD, as the bullish macro was exhausted and not even the higher China data would cause a sustained move higher. Then the weaker CNY manufacturing numbers came out, and I was thinking about shorting AUD/USD after the FM spike, but I decided against for two reasons:
First, because the market had already dropped 50-60 pips, and my prior research on that news report showed that a 50-60 pip move was probably all that it would go given the deviation from forecast.
And secondly, with the RBA having switched to neutral, any bearish CNY news may not cause aggressive AUD sellers betting on AUD rate cuts.
So given those two insights and piece of information, I didn’t want to short AUD/USD at the lows, so I just stayed out of that move. Then the AUD just chopped around for the week and I didn’t want to place a trade in the middle of the range, since I was uncertain as to where the eventual breakout would go, the timing of it, the potential win rate, and the reward risk ratio. Too many uncertainties for me to place a trade. Better off just staying out, or trading another market, or waiting for another days information flow and analyzing it with a fresh pair of eyes.