Forex Event Trading

With all of the major news events coming up in the month of September, I thought it appropriate to post Darkstar's short forum post on event trading. You can find it here: http://www.darkstarforex.com/Blog/tabid/200/entryid/188/Event-Trading-is-Easy.aspx    - and  make sure to check out the rest of his blog. It's an excellent source of FX education.

Aug 20, 2006

Quote:

""Originally Posted by jlowder:
Having never actually seen a news release I'm curious as to how this works. Do the reports simply state the numbers upfront, like what we see on the calendar here? And if thats the case, isn't it a pretty cut and dry method of deciding if the price will go up or down? I mean, once you determine higher than expected numbers raise/lower the price for one news event, wont' that always be true?

Or is it more involved than that? Given the response time to news releases I would think that it would have to be that simple?""

Event trading is much more involved then that. Depending on how the numbers print in relation to expectations, the pair can treat the same miss in different ways. At one point, below consensus inflation numbers can indicate a moderating of inflation. At another it can mean a recession is brewing. Yet again it can mean nothing at all.

To start with, an understanding of economics and the effort to track long strings of different data points are required to make the determination which is the case. Then a wealth of research needs to be dedicated to discovering how much of a number is actually priced in. It is rare that the “consensus” numbers are the ones the market is priced for and making that determination is complicated. Most of the data is anecdotal in nature (sentiment and feel) or messy (pre announcement order flow). All of the whipsaws you have ever seen are a result of pre-priced data. Unless you know this info, you’re in for a beating at some point.

Then there is post announcement trade management. Tech analysis is useful, but a deep understanding of order flow is critical. You have to make certain assumptions about how much of the open interest has been pulled because of the data, where new interest will be growing, and ultimately how you should expect to position your own stops and take profits as a result. Classic trader rule #3 is “cut your losers and let your winners run” and it holds just as true for event trading as is does for trend systems. Someone may be content with a fixed 10-50 pip profit, but they are either leaving a fortune on the table or needlessly risking all they have made. Numerous 2, 3, and 400 pip moves have been sparked by a single news event this year alone…

News trading is ridiculously profitable if you know what you’re doing. What disturbs me is that the current crop of event traders all think this can be distilled down to a simple 2 order bracket system. The current sentiment is that brokers and market makers are all stupid. Consensus says they are quite content to allow every Joe to extract millions from their pockets with little effort. Unfortunately sometime soon the hammer will drop and the forum will be running red with blood. It should never be forgotten that we are trading against a group of professionals that only get paid when we lose money. They have been at this game a long time and know how to lull the foolish into complacency. Once the leverage begins to tick higher (which it no doubt is currently) a little price or spread manipulation will recover all they have lost and a windfall profit as well.


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Record EUR 'Longs' Suggest Caution Into Next Week

Last week we discussed in detail the shifts in regimes and positioning in the FX markets - most notably relative to the EUR. CitiFX is out with a note today that extends our concern as their proprietary CitiFX Positioning Indicator shows a rise from a record short in EUR in mid-July to a record long by last week. The EUR buying has been broad based and not just concentrated against the USD, with investors covering short exposure on pairs such as EURAUD and EURCAD. The shift in positioning came as peripheral spreads tightened and US yields fell, implying that it was kick-started by the surge in expectations for Fed and ECB easing. With equity markets roughly steady in recent days and data flow still relatively weak, this leaves the impression that the continued shift in FX positioning has been more about momentum than improvement in sentiment. This suggests that FX markets may be pricing in a higher degree of confidence on easing (or signs thereof) at the Jackson Hole conference and later ECB meeting. Given that absolute positioning for EUR is now long, this sets a high bar for policymakers to exceed and suggests risks are skewed in favor of a reversal on disappointment with Chairman Bernanke and President Draghi.


CitiFX Positioning Indicator









Source: CitiFX

http://www.zerohedge.com/news/record-eur-longs-suggest-caution-next-week


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Join Us in the BeamFX Live Trade Room for FREE

Hey Guys,

We are happy to report that our live trade room has been going really well since we kicked it off earlier this month. We discuss market psychology, technical & fundamental analysis, and more! Don't worry, if you're a beginner, we'll be happy to cover the basics for you. No question is off limits! The best part is that our live trade room is absolutely FREE to all of our live & funded account holders. Don't have an account with us? - No problem! We'll give you a free one week trial! Simply email support@beamfx.com.

We look forward to talking about the markets with you!


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Dealing With Trading Losses: Account Equity

The way that you view your account equity is important. For example: John opens a $10,000 account. He loses $1,000 in a week, and now has an account balance of $9,000. At this point, what's probably running through John's mind is that he's now "behind" - he has "lost money" and won't have "made money" until his account is above $10,000.

I see this scenario play out all the time and it usually results in blown up accounts. If you ever try to "make money back" you are headed for disaster. Trading is a process - having profits or losses is the result of that process. When you focus on the result and not on the process then your performance will suffer. (and thus your result.) 

When John is trading a $10,000 account and he loses $1,000, he should instead think: ok, my equity is $9,000. I don't care what it was before then, $9,000 is what I'm working with right now.


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A Trader's Ability to Self-Evaluate

As a trader, it's important to be able to evaluate yourself on a daily basis. We all know that trading while you're emotionally compromised (frustrated, angry, sad, impatient, etc.) can lead to substantial trading losses.

The first step to overcoming your emotions is to get in the habit of evaluating your emotional status every day. I usually wake up at 5:00 A.M. and get into the office by 6:00. If I'm frustrated by a losing trade from yesterday, I make note of it and am extra careful that I guard against impatience. My natural tendency is to try and "make the money back" and that can lead to hastily putting on a trade. If during the day something causes me to get angry, then I simply stop trading. I can't be objective if I'm not calm. 

Remember, it's not good enough to evaluate yourself only when you feel like it. Trading is all about building good habits. I also evaluate my physical condition. Am I tired? Hyper? Is my mind clear or foggy? If I'm tired, I may not be as careful to make sure that all of my criteria are met before I pull the trigger on a trade. If I've just chugged an extra large coffee, I'm more likely to triple check market conditions and my criteria for taking a trade; but I'm more likely to overlook a crucial detail. 

For me, the most important part of my self evaluation process is for me to write things down. Just like jotting down notes about your trades - it's a good habit to get into. If you're too lazy to do either, then you probably aren't cut out to be a trader. Trading well on a consistent basis requires hard work and discipline.


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Wall Street Pros Are Boosting Stock Forecasts

And this is why I need to be careful shorting the Euro & Aussie. This is just unreal, I guess what goes up can keep going up and never come down. Never mind that the manipulated data coming out of China is increasingly worse - not to mention that the public doesn't get to see the actual numbers that aren't tweaked. There's a fiscal cliff looming in the U.S. and I highly doubt that our elected officials will do anything besides bicker. National debt levels are increasing in Europe, and most of the countries are still running budget deficits. They haven't actually fixed any of the fundamental problems. Oh, and did I mention that there's a chance that Israel might start a war in the middle east?

But hey, all of that stuff is irrelevant. The Fed is going to print more money so LET'S BUY STOCKS!!! http://www.cnbc.com/id/48766057


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FREE one week trial to our Live Trade Room

Hi guys, Michael and I are offering a free one week trial to our live trade room. If you are interested, simply email support@beamfx.com requesting login details.


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Goldman Sachs to cut 20-30 jobs in Sales & Trading

And from Zerohedge we can see why...

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Currency Flows Reversing

Just three months after the biggest developing economies sold dollars to support their currencies, policy makers from Colombia to China are moving to weaken exchange rates and revive exports as the International Monetary Fund forecasts the slowest trade growth in three years.

Colombian Finance Minister Juan Carlos Echeverry urged the central bank on Aug. 3 to boost minimum dollar purchases from $20 million a day, saying the country needs “more ammunition” to drive down the peso in the global “currency war.” The Philippines banned foreign funds from deposit accounts and unexpectedly cut interest rates in July as the peso hit a four- year high. In China, authorities lowered the yuan reference rate to the weakest since November, which according to Citigroup Inc. will create “headwinds” for other Asian currencies.

After spending more than $59 billion in foreign reserves in May and June to stem currency depreciation, developing nations are reversing policies as the European debt crisis outweighs the risk of faster inflation. South Korea and Chile may weaken exchange rates to make their exports cheaper, according to UBS AG. The IMF estimates global trade will expand at the slowest pace since 2009.

“Policy makers will become more aggressive,” said Bhanu Baweja, a London-based strategist at UBS. “The currency strengthening is in contrast with the state of the economy. That argues for much weaker foreign-exchange rates.”

http://www.bloomberg.com/news/2012-08-13/currency-flows-reversing-china-to-colombia-as-trade-slows.html

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The BeamFX Live Trade Room

Hi Guys,

As most of you know, at BeamFX we strive to provide excellent customer service and technical support. In addition, Michael Weissman and I have recently started a live trade room. Here are the details:

1. Access to our live trade room is absolutely FREE if you open and fund a live trading account with BeamFX. ($199 per month for non-BeamFX account holders.)

   

2. We run the live trade room 5 days a week, from 7:45 - 10:15 A.M. EST. This time period is generally regarded as one of the best times of the day to trade as both the U.S. and European markets are open and active.

3. The trade room is interactive and we will be discussing all aspects of trading on a daily basis. Special emphasis is placed on trade setups, risk management, proper placement of stop loss/take profit targets, and most importantly (in our opinion) - trading psychology.

4. Your questions are important to us. We'll take the time to answer them - you will not be ignored.

If you trade with us, we want you to be successful and are here to personally help you navigate the forex market. Feel free to stop by our office in New York or give us a call. 

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Standard Chartered CEO Says ‘No Grounds’ For Revoking License

And the expected denial is released.

"Standard Chartered Plc (STAN) Chief Executive Officer Peter Sands hit back at a New York regulator’s claims the bank broke U.S. sanctions, and said he saw “no grounds” for revoking the lender’s license.

“We reject the position and portrayal of facts by the Department of Financial Services,” Sands said on a conference call with reporters yesterday, his first public comments since the regulator’s report on Aug. 6. “It would be disproportionate and wholly inconsistent with the actions of other U.S. authorities in other sanctions matters” to revoke the bank’s New York license, he said.

A settlement of $700 million would match the amount that HSBC Holdings Plc (HSBA) set aside last month after a Senate committee found the bank gave terrorists, drug cartels and criminals access to the U.S. financial system." - http://www.bloomberg.com/news/2012-08-08/standard-chartered-ceo-sands-rejects-n-y-regulator-s-claims-1-.html

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Standard Chartered Bank Faces License Suspension

Apparently HSBC isn't alone in being accused of a massive compliance breach. A complaint was filed against Standard Chartered Bank the other day for intentionally misleading U.S. regulators and committing fraud. They are accused of laundering money for Iranian clients. That sounds more serious than HSBC laundering money for Mexican drug cartels, because as far as we know those drug cartels aren't trying to build nuclear weapons - not that they wouldn't like having a bomb to play with.

So Standard Chartered Bank has to show up in a New York court in a week or so and explain why they shouldn't lose their licenses to operate in New York. I imagine there will be some sleepless nights for their executives and some lawyers in nice suits making a small fortune.

On a side note, I've heard market talk that other U.S. regulators are furious that the New York State Department of Financial Services didn't give them a heads up before taking action. Talk about a missed opportunity for the Obama administration to take credit for further cracking down on Iran.

Ironically, Iranian buyers are still potentially able to launder money via the U.S. real estate market, because the National Association of Realtors is exempt from complying with Anti Money Laundering (AML) regulation. And we wouldn't want them to have to comply with that, because that would hurt the housing market, which has supposedly already bottomed.




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Safe Havens?

There is a terrible irony in export-dependent nations being viewed as "safe havens." Their safe haven status pushes their currencies higher, which then crushes their export sector, which then weakens their entire economy and stability, undermining the very factors that created their safe haven status.

- Charles Hugh-Smith



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