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Thursday
Aug022012

Trading The News

Emini Futures - Trading The News

Trading news driven economic events is an art unto itself. Notice I call it an Art, not a Science. Markets can rally on what appears to be a dismal economic report and they can also drop precipitously on what to the ordinary man appears to be perfectly good news. This is not to say that markets don't also run up on bullish news and decline on dour news... they do. That's what makes it more art than science.

The news itself is secondary to how market participants react to the news. A trader who specializes in trading economic news events is watching the crowd just as closely as he is watching the numbers, perhaps even closer. Interest rates, unemployment numbers, or the central bank's policy shifts are just three examples of news driven events that can create extremely volatile trading environments.

Our course encourages you to be flat if at all possible ahead of these reports. Over time as you gain a more in-depth understanding of how markets work, you may find that comes naturally for you and that your trading persona is more Artist than Scientist. Don't rush the process. Patience is a virtue in all areas of life. If you feel called to trade news events, experiment with a trading simulator until you are confident in your ability to read the reaction before putting real money to work.

Here is an example of a highly anticipated news event. Traders expected an announcement from the ECB confirming a rate cut or some other type of monetary easing. Below is a case where there was no "bad news" per se, but there was a lack of the much hyped and hoped for "good news".

 

SP 500 Emini Futures(ES) S&P 500 Emini Futures

 

Price rallied 5 points in 5 minutes until the hive mind figured out the news wasn't good. The market then dropped 27 points in 30 minutes. After trading sideways for 30 minutes the crowd decided it really wasn't "bad" news, just not the news they had anticipated. The result is that over the next 90 minutes the market recovered 50% of the decline. Once the fireworks were over, the remaining volatility created some very nice trade set-ups for the remainder of the day.

 

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Discussed on today's broadcast: (SPY)(DIA)(GLD)(FB)(TSLA) 


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Emini Podcast for Thursday 08/02/12

Reader Comments (3)

Any guess on the Employment numbers tomorrow?

Aug 2, 2012 at 23:41 | Unregistered CommenterTed

Ted,
I guess they went up. Or at least that's the picture that was painted. NPR is not known for being on the right side of the aisle most days but today they nailed it :

Actually, The U.S. Lost 1.2 Million Jobs Last Month

Aug 3, 2012 at 13:10 | Registered CommenterEditor

Do you think the numbers will be adjusted? When I hear you on your radio show I get the impression you don't put much stock in these government economic reports? Am I off base on that assumption?

It looks like even NPR is starting to doubt the leftist regime.

Aug 3, 2012 at 23:09 | Unregistered CommenterBill G.

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