Trading Economic Releases: Don’t Jump In

Have you ever asked yourself why did a currency fall if the economic figure was positive. Shouldn’t the currency continue rallying?

The answer is: not necessarily

Markets have the keen concept of speculating. According to Investopedia, the main purpose of speculation is “to profit from betting on the direction in which an asset will be moving.”

Another way of looking at this, through the economic release lense, is by the “well-known” reference “Buy the Rumor, Sell the News” or “Buy the Rumor, Sell the Fact”.

The Forex market often prices in the move before it occurs. Traders are inclined to anticipate the most probable scenario and take profit once the data is out. Thus, prices tend to move in the opposite direction and catch many novice by surprise.

Even if the data confirms the bias and the trend, it does not necessarily mean it will continue on the same route. A currency pair cannot move in one direction forever without reversals. To a trader, confirmation of an expectation means TTI — “Time to Cash In!”.

The most common mistake is not looking ahead and acting on impulse. You may then find yourself on the wrong side of a trade and usually have to take a loss. It does not mean the market is out to get you, it means you did not plan correctly. Basically the move has passed and you are late to the party. We always need to keep in mind the “market mechanism” of anticipating moves for profit — speculation.

Professional traders plan ahead and cover all possible outcomes. To do this, you simply need to constantly check an economic calendar, spot the most important releases, check what the market estimates are, and read any piece of analysis regarding the news that could offer a glimpse into the real investor sentiment. That is, the analysis and moves are usually made before the announcement hits the wires.

At first it may seem like a lot of work but after a while you will notice a change in how you view the market. You will begin to note which releases “really” matter at certain periods of time and you will start to plan orders accordingly. Combining this approach with your technical strategy — and if both align ahead of the release — expect some serious TTI’s. *This, however, needs to be done HOURS prior to the data and in a few minutes you will know if you are on the right side or not. By no circumstance should it be done a few minutes prior to the release — one does not know how a news release will print.

Other scenarios – At times, a big release could be due ahead; but market participants are unsure of what the most probable outcome is. In such case you tend to see currency pairs trade in tight ranges. Another scenario is a big surprise from the expected, in which case a sharp move may ensue.

My personal view only – As a trader, a news piece that has been just released is inconsequential, anticipating the news is what matters… (remember hours before – not minutes)…that’s why so often moves retrace on confirmation… if you look back to your charts the move started several hours before the release.  Same in stocks… earnings releases, product releases… all that is usually anticipated before hand. Knowing about fundamentals its not about one piece of news — its having knowledge about the health of the country to which you buy or sell currencies.