Trading news and sentiment

This is very true.

I personally use a slightly different approach as I am often unable to trade after the news in its direction, given liquidity constraints for the size I need to move around. Usually the only way for me is to be the one who is providing liquidity / fading the spikes, if I think it makes sense given macro / sentiment and technical considerations.

There are a few things I am looking at at the moment and a few trades that I like. I am a swing trader, looking for larger moves in general while being very active and managing my risk / position sizing dynamically on shorter timeframes. I trade multiple assets from rates, credit, FX, and their derivatives - futures / forwards, options and CDS. That's why what you described about looking across the spectrum and following everything from commodities to equities is very close to me, as it really allows you to understand how the markets click together and that you can find many opportunities looking at correlations and short-term mispricings that occurr very often.

Now the ideas - happy to hear everyone's thoughts. I am not going to go into deep details on the reasoning as I would probably need to spend an hour writing this, but in summary:

US stocks / General risk appetite to rebound starting probably tomorrow

1. Extremely positive seasonal period for stocks ahead of us
2. US midterms are coming soon - currently the market is pricing a very marginal chance of Republicans taking both the House and the Senate -> that would mean pricing more fiscal stimulus which is positive for risky assets. There is a potential for re-pricing of this probability in my opinion as Trump's approval ratings are rising consistently and pre-voting in 5 important "coin-toss" states is showing Republicans being more enthusiastic.
3. Historically, around mid-terms (in the period of 1 month before until 2 months after) only 1 out of apx 30 occassions has been bearish on US stocks, with median return of 10%
4. Month-end to be technically supportive - given the moves in stocks vs moves in govie bonds, there should be significant demand for equities driven by pension fund month end rebalancing
5. A big part of share repurchases (buybacks) have been mostly stopped in the last few weeks because of the earnings season black-out period. This and next week, many large companies are coming out from this black-out period and the largest source of demand for stocks this year - the buybacks, will start resuming.
6. We have Facebook and Apple earnings this week, with expectations being rather on the low side given recent dissapointments elsewhere. Possibility of a positive surprise there?
7. The market is oversold in the short-term and technicals have been mostly cleared out (market participants are mostly bearish, quant driven funds like CTA, Vol Target, Risk parity have de-risked already)

If the above happens (my base case), that should mean:

1. I am looking for opportunities to get long USDJPY (maybe AUDJPY too) tomorrow - it correlates very well with risky assets, at the same time US govie bond yields should resume the march higher - also correlated to USDJPY. I think chart still looks constructive here as long as we remain above 110, and would be looking for targets towards 118.
2. I remain short EURUSD, have had that last 2 weeks - makes sense macro wise given macro fundamental / growth / central bank policy divergence between EU and the US. I like it as long as we stay below 1.1460 which is a nice level to add. The longer term target would be towards 1.0750 which is a post Macron election gap. I will be trading short term price action around, but with a general bearish bias.
3. I do expect a general USD strength into year end / mid January, because the rest of the world is slowing down, FED remains hawkish, price momentum is very strong, it is a trade that seems "underowned" on the institutional level and there is a lot of space for people chasing it higher. But I think the main source of flow is going to be another leg of USD repatriation from abroad that will increase the pace in my opinion - many of these decisions on the corporate side are especially made into year end to make sure the balance sheets are clear for end of year reports.
4. I also bought some topside options on Cable as a hedge today as potentially positive Brexit news could mess up with my EUR lower view.
5. Interest rates to start moving higher again, but not too much - we might make new highs but it seems the move there is soon to be over, finishing for this cycle before year end in my opinion.

A brilliant contribution to the thread DaRealTrader. Here is an interesting chart that could bring fireworks to the party. At no time in history has the US economy operated on cheap money for so long. Going into such an unprecedented period of credit growth was always going to hurt, and now its all just got a lot more expensive with more pain on the way.

Monthend flows in force. I see Wells Fargo reckon as much as 21bln in US equities might need to be purchased and an outflow of up to 27bln from gov bonds. It's anecdotal so don't use it alone to trade. If anything it should make you a little more cautious for irrational moves.

This is a great thread EcoTrader, thanks for posting all this.
I'm going to try and delve into it all

One fact interests me, do you suffer much slippage or stop-outs on your entries if you're entering just after news releases, or do you give stops a fair bit of space or even wait a while until market settles before entering?

slippage does happen but to be honest i never really notice it. I will post another update on trade management including stops - it is probably the most complex part of my process as it isn't rigid and on a case by case basis. I do have dead stops but it varies based on the trade type (swing or session). Will try get something up later today.

US October consumer confidence 137.9 vs 135.9 expected

Hello Traders. Am new to Forex and I feel trading News is the best for me. I have a little account and I want to ask. For this week which News will be perfect to trade on, Which News will have a huge Spike in the market as at the time of release? Pls reply asap

Yep, feels like it's been playing out nicely today. The same goes for USD apparently, the month-end demand is supposed to be very strong because of relative asset performance - it also trades like it and it remains extremely bid with very tiny pullbacks (a lot of that has already gone through I suppose as many institutions spread it out through last few days). The tricky part is going to be tomorrow as this was expected, very well telegraphed and pretty much majority of shorter term risk takers (fast money / hedge funds & sell side traders) are already long USD going into it. That can leave the market vulnerable to squeezes both ways and I am expecting a decent intraday volatility tomorrow, especially in EURUSD.

Its a busy calendar so you are probably right.i hope I'm not in meetings (I didn't check and can't be arsed to login now either). I'll take what I can get for sure. The European inflation data is on my watch list. The ecb have softened their expectations so it could kick the morning session off. . Also looking at cad GDP and inflation prints. They have become more aggressive but data dependent so should provide a few.pips opportunity.

one trade done this morning (0.3% gain), EU inflation wasn't a trade for me so onto the CAD later.

So far i am closing the month off with 17.1% and if CAD turns out well that might be higher (or lower of course). In any case it has been a good month. Small and steady gains throughout the month all add up.

Wow. You closing the month Big. What did you think for tomorrow's GBP news

Not much to be honest. The BOE have been committed to 1 hike a year and we had this already. Brexit overshadowing other news to an extent also takes away any potential for it. I am pretty much neutral GBP unless there is unscheduled brexit news.

Well the CAD turned out to be more or less a dud. We had better GDP news albeit not by much of a deviation and oil is on the softer side and I closed out for a couple of pips. I will be flat for rest of the day unless there is some juicy unscheduled news.

Thank you for your well written, detailed method into how you trade the markets EcoTrader.

I have never consciously traded news as I believe any news and their outcomes is factored into Price. I am however, intrigued in some systems and this one seems interesting enough to tickle my two brain cells.

Would you mind at least naming the pairs you just closed out .

Audusd and eurcad. I can show you a chart for any major currency pair with news overlapped as an indicator where you can see enough evidence to convince you that not all news is factored in. Only expected results are factored in and those I don't trade.

Managing trades

I am struggling to appropriately explain this to be honest. My trade management is dynamic with very few rules and takes into account sentiment and price action. Its complex and no 2 trades are the same but its saved my arse more times than its left me watching price run away without me.

I will give a general summary and then discuss todays trading as an example.

I generally have a 4% dead stop on a trade but this isn't set in stone for all trades as there can be short term sentiment on a swing trade that goes against the fundamentals. In these very rare instances I take into account the drivers of sentiment relative to the fundamentals and also the strength of sentiment and cross market correlation. I think it would be best to separate swing trading from news trading as this thread is focusing on news and sentiment trading which is short term (1 or 2 sessions in the same day).

So if you don't already know I don't look at a chart until I enter a trade. This provides pure clarity and no room for fitting any narrative to my assessment which charts are so good at imposing.
Trades are all market orders and I have a 4% cutoff if it goes against me. Its extremely rare for this to happen because I have a system of managing that gets me out long before that 4% loss could become a reality.

So the first and probably the most effective rules I have for defining exits is time and price action. After a news event a 20 minute timer starts and I gauge this by monitoring the 5 minute chart. I initially take a look at the hourly for major price congestion levels and then shift down to the 5 minute chart. The time element is a filter for duds because the expected behavior for a trade is a lot of interest pricing in new information. If after 20 minutes price is battling to break through a level or still nesr the trade entry I close the trade. This rule alone has saved me from losses more times than I can count. You will notice on my account there are trades with a 0 to 0.3 gain or loss and these are ones where this rule applied. More often than not the exit is for a few pips profit.
The next rule which often comes into play with the time rule is price action at congestion levels. If price is struggling to break a level and it at that level for at least 10 minutes I close the trade. This rule focuses on interest in the news release and if price isn't tearing through levels it shows there is little interest and there is really no point in hanging about.

I always have a general target in mind but it is rarely hit. Sentiment and news are in constant flux and winners can become break even or worse a loser if you hang about for too long. Time in the market equals risk and you only want to assume risk when all the elements are in your favour. So what I do here is look again at time relative to the next major session (time of day), the average daily range, and always watching sentiment and news.

My goal isn't to be greedy but to gain as much of the dissipating opportunity as I can. Typically I am looking for 0.5% to 1.5% gain. The motives are steady repeatable growth that aggregates to greater than 10 percent gain over a month.

I will exit a trade before news if I know that data point will likely affect the trade. I will exit a trade if I have greater than 0.5 percent gain and the next session is about to start. I will also exit a trade if I price sits at any congestion level for more than 20 minutes.

It's all about risk control and this is absolutely key to my success. Looking at today as an example, I took a trade short audusd because of softer AU data, softer metals, softer China data, and diverging central banks. This trade is after the news, well after but when it comes to Asia news you very often get follow-through in eu session. Price moved down and I closed the trade as I was looking to focus on eu data and the risks of it affecting dollar in general so the risk of losing was high if I held and that's exactly what price did, it retraced all the gains it made in the early eu session.
The cad trade i was targeting 20 pips because there wasn't much scope for profit after a softer inflation print plus a marginally better Gdp number. I was watching eu against the dollar and oil at the time and it was EU's weakness that was assisting the trade but there was no follow through. Ultimately oil softness and the inability to break lower triggered an exit on the trade for a few pips profit.

I know its complex but it works for me. Its a constant feedback process that is adjusting the likelihood of the trade bombing out. Looking for indicions like I do gives me the ability to accurately predict dud trades and thereby improving the bottom line.

You should all be looking to focus on adding more feedback to your trade management to reduce losses.

,,,doh ,,,just realised you have a TE.

You only trade unexpected news events,,,, that is definitely a plan for me. I trade the expected ,,,, so now I'll include the unexpected which will help me manage any trades that are open during unexpected events.

Nice.

There are more opportunities in unexpected data. You will probably improve your bottom line by switching this into a filter whereby you initiate trades technically off the back of an unexpected number. The greater the importance of the data to the central bank and the greater the deviation, the better the opportunity.

Good luck I hope you find a sweet spot.

Once I've got into the analysis I'm sure I'll be in agreement with you

And thanx.

How do you come to this conclusion or measure this? The talk has been how crowded the Long USD trade is? Just curious....great post by the way.