If it isn’t already obvious, I want you to rely on price and price action to make your trading decisions. This isn’t because I don’t respect fundamentals or data—in fact I do—but they are not reliable when it comes to market timing (your entry) and market direction. This is due primarily to the way news filters through the market and is discounted. Discounting is the process by which news and data is factored into the market, often well ahead of the actual information or data that is released or confirmed. The markets are always forward looking. This means that what traders think may happen is what moves the market.
One simple way of seeing this at work is looking at data releases and the way market participants factor in the forecast or consensus of a report and the way they react to the actual data. So it’s not enough to simply see that a news event has beat or missed expectations (the consensus). You must also factor in to what degree the number beat or missed its mark and also know beforehand how much the consensus was discounted into the
market. The very act of trading news requires that you understand price action. You will notice with frequency that “good data” can make a market sell-off and “bad data” can make a market rally. Again, the data is not compared month to month, or whether the number was positive or negative, but rather it’s compared to what traders expected the number would be. So is trading news and fundamentals a level playing field? Heck, I forget if it is level or not . . . it’s hard enough to even find the field itself! Another factor that makes fundamental analysis unrealistic for not just Forex in Five trading but for most traders is that it is time consuming to gather and analyze the data, all the while knowing that you may not even have the complete picture, or all the data, or even the correct data. Then you must take the last step and determine how much of what data is already factored into price. And I’m not overcomplicating this. This is the process. Instead do what I do, focus on two numbers, the consensus, which is what is most widely baked into the cake (discounted), and the actual, which you’ll find out when everyone else does. This brings up another issue with trading news, the order entry. I will go into detail about order entry in the next chapter, but I want to mention here a few salient facts.
Let’s be realistic. I am not some hotshot trader at a bank or a pit trader with instant access to the market. I am a home office–based, private trader. I can’t trade as anything but that. Nor should I try. I am not privy to all the latest market intelligence, and I can’t delude myself into thinking that I know something that the market doesn’t. Order entry during economic news releases is insane at best and stupid at worst. Order entry platforms have a terribly inconvenient tendency to freeze during these volatile times. Spreads widen, the market jumps. I don’t want to be in the mix during these times but I can still take advantage of trading the moves that are generated during releases. You see the follow-through may come from the release itself, but more often than not, you will have an opportunity to setup and enter a market in advance of the release—if you watch price action, that is. It’s not that common really for prices to make sharp reversals from economic releases. More often the data simply hits the accelerator in the current direction. Weak gets weaker, strong gets stronger.
Are there advantages to being a small trader? Sure. I am nimble, and the market won’t see my trade size coming. Frankly, it doesn’t care. I can watch the big boys make the moves, and I can react to them knowing that the moves they make are large. I can move under the radar, in and out, and do it all over again. Why have I relied on trading price? It’s the only level playing field, and there’s just too much news and fundamentals out there to paint a complete picture and act on it with confidence. I’m never going to know everything, although I try to convince my husband that I do.
One simple way of seeing this at work is looking at data releases and the way market participants factor in the forecast or consensus of a report and the way they react to the actual data. So it’s not enough to simply see that a news event has beat or missed expectations (the consensus). You must also factor in to what degree the number beat or missed its mark and also know beforehand how much the consensus was discounted into the
market. The very act of trading news requires that you understand price action. You will notice with frequency that “good data” can make a market sell-off and “bad data” can make a market rally. Again, the data is not compared month to month, or whether the number was positive or negative, but rather it’s compared to what traders expected the number would be. So is trading news and fundamentals a level playing field? Heck, I forget if it is level or not . . . it’s hard enough to even find the field itself! Another factor that makes fundamental analysis unrealistic for not just Forex in Five trading but for most traders is that it is time consuming to gather and analyze the data, all the while knowing that you may not even have the complete picture, or all the data, or even the correct data. Then you must take the last step and determine how much of what data is already factored into price. And I’m not overcomplicating this. This is the process. Instead do what I do, focus on two numbers, the consensus, which is what is most widely baked into the cake (discounted), and the actual, which you’ll find out when everyone else does. This brings up another issue with trading news, the order entry. I will go into detail about order entry in the next chapter, but I want to mention here a few salient facts.
Let’s be realistic. I am not some hotshot trader at a bank or a pit trader with instant access to the market. I am a home office–based, private trader. I can’t trade as anything but that. Nor should I try. I am not privy to all the latest market intelligence, and I can’t delude myself into thinking that I know something that the market doesn’t. Order entry during economic news releases is insane at best and stupid at worst. Order entry platforms have a terribly inconvenient tendency to freeze during these volatile times. Spreads widen, the market jumps. I don’t want to be in the mix during these times but I can still take advantage of trading the moves that are generated during releases. You see the follow-through may come from the release itself, but more often than not, you will have an opportunity to setup and enter a market in advance of the release—if you watch price action, that is. It’s not that common really for prices to make sharp reversals from economic releases. More often the data simply hits the accelerator in the current direction. Weak gets weaker, strong gets stronger.
Are there advantages to being a small trader? Sure. I am nimble, and the market won’t see my trade size coming. Frankly, it doesn’t care. I can watch the big boys make the moves, and I can react to them knowing that the moves they make are large. I can move under the radar, in and out, and do it all over again. Why have I relied on trading price? It’s the only level playing field, and there’s just too much news and fundamentals out there to paint a complete picture and act on it with confidence. I’m never going to know everything, although I try to convince my husband that I do.
