How To Know When News Is Already Priced Into The Market???!!

This is a discussion on How To Know When News Is Already Priced Into The Market???!! within the First Steps forums, part of the Reception category; Aloha people, me again. I hope this doesnt turn into another off topic contreversial bitch fight thread, but all handbags ...

Reply
 
LinkBack Thread Tools Search this Thread
Old Jul 5, 2008, 7:35pm   #1
Joined Feb 2008
How To Know When News Is Already Priced Into The Market???!!

Aloha people, me again.

I hope this doesnt turn into another off topic contreversial bitch fight thread,
but all handbags ready just in case...






I would really like to know how you know when a news data/number has already been priced into the market, and so how to know if once it is confirmed at the release time the market will then recover, or continue to fall??


My main 2 examples of this so far, that both lots me ALOT of money, were;

The BOE inflation number was coming out on a monday 3weeks ago, it was expected to be bad, and so mervin king was going to have to write the letter to chancellor.

So i sold the ftse at £3 point that day, when market was at about 5950 because i could see the fall was coming.

But what happened... Ftse rose about 150points that day, taking out my stop since i hadnt use my giant stoplosses, id just use a small 1 of 100 like everyone on here says is better than my style!!!
So i got taken out and lost £300!

Next day however it turned out i was right, and the ftse free fell 600points over the next 2 weeks!!


But instead of making the £1,800, like everyone else who follwed my call that day made, i lost £300.

I accept some people just have very bad luck, i know im one of them, and so i just had to accept that it was just badluck and nothing i could do about it.




2nd example was thursday when the ecb was raising interest rates, so the euro would rise in value even higher, so would crush the dollar even more and so oil would rocket even higher, gold would rise, and dow would crash even further, especially since nonfarms were coming out bad that day.
That was the view of every single expert, every news article, everyone in that chatroom i used to go in, and it did make sense and seemed logical since if euro interest rates goingup so will euro...

And so since everyone was saying my oil short was stupid and oil was going 150 that day and every article was also saying that too i cut trade down to £1 tick, and so lost £585.

And went long on the oil daily + shorted dow straight after non-farms, which was at same time as trichets speech started.


But it turned out all the experts and everyone had got it wrong, and the euro fell instead even though the hike came, dow rocketed even after bad non-farms, but oil just hovered not really doing anything!!



So i would really really apprecaite peoples help in how you are meant to know at what stage the predicted number/rate increase will have started being priced into the market, and when it will have finished being priced in???


Thanks
spanish89 is offline   Reply With Quote
Old Jul 5, 2008, 7:56pm   #2
Joined May 2007
Trading on the news unless you are very close to where the news is being made can almost never work as a trading system. By the time mere mortals like us hear the news then it is always priced into the market. But lets take one of you examples:

Quote:
Originally Posted by spanish89 View Post
The BOE inflation number was coming out on a monday 3weeks ago, it was expected to be bad, and so mervin king was going to have to write the letter to chancellor.

So i sold the ftse at £3 point that day, when market was at about 5950 because i could see the fall was coming.

But what happened... Ftse rose about 150points that day, taking out my stop since i hadnt use my giant stoplosses, id just use a small 1 of 100 like everyone on here says is better than my style!!!
So i got taken out and lost £300!

Next day however it turned out i was right, and the ftse free fell 600points over the next 2 weeks!!


But instead of making the £1,800, like everyone else who follwed my call that day made, i lost £300.
You say that the BOE inflation figure was expected to be bad. If it was expected to be bad then the market will have priced that expectation into the index. The only way that a large movement will occur therefore is if the number is far worse than expected or better than expected. How do you have an edge in being able to predict this as opposed to the experts whose job it is analysing the figure? Of course you (or us) don't.

And then you say that you were proved right as "the market fell 600 points over the next 2 weeks". You weren't proved right at all. The market fell sure, but to attribute that to the (expected) inflation figures is wishful thinking. The market fell due to a flood of other data and due to the psychology of the total sum of traders round the world who were looking at the data and the prices.

If you are really determined to trade using the news (and I would highly recommend not to) then look at situations where the market does not do what is expected. Eg where the figures should make the market rise but for some reason it doesn't then often it will go in the opposite direction and visa versa.

Bottom line - by trading the news you will have no edge and will lose.
Shanghai is offline   Reply With Quote
Old Jul 5, 2008, 7:57pm   #3
 
arabianights's Avatar
Joined Jan 2007
To the first approximation if it's expected then it's already priced into the market.

I don't expect you to understand the implications of this but they are pretty important.

Let's face it: if people knew oil was about to fall then they'd go short just before it was going to. But if everyone was going to do that then you should go short the day before that. But of course then you should go short three days early...

See where I'm going with this?
__________________
World's leading STIRs chatroom - www.propboards.com - register, then click on chat. Don't let the lack of posts on the forum put you off - the action happens in the chatroom. Targeted at locals, but hedge funds, brokers (including IDBs), market makers, and a few sizable amateurs are all represented. When it's quiet, banter is encouraged and anything goes.

No nuisance spread betters please. Anyone else welcome.
arabianights is offline   Reply With Quote
Old Jul 5, 2008, 8:13pm   #4
 
shadowninja's Avatar
Joined Jul 2007
I keep telling you, "Don't trade the news". It's for the professionals in big institutions. You need a serious edge to win. You need to understand what you're up against.

It's the equivalent of running into Afghanistan with a 4 inch penknife, just wearing some Union Jack boxer shorts while the Taliban have a load of AK47s and anti-tank rockets. Sure, you may injure one guy, but the odds are seriously stacked against you.
__________________
The markets can stay solvent longer than you can stay irrational.
shadowninja is offline   Reply With Quote
Thanks! The following members like this post: the blades
Old Jul 5, 2008, 8:39pm   #5
Joined Nov 2007
Spanish, you have to differentiate between new news and old news.

For example; The ECB hike - been expected for a long time, therefore it's old news, therefore it's priced in to the market. The news that rates had been increased doesn't mean anything in this case - as soon as the market has learnt that rates were on the up (through their own research, lisening to Trichet et al), they would have traded to act - and they learnt that rates were on the up long before they were actually increased.

As for the Non-Farms, it's similar but a little different; at any point, there are economists in banks all over doing research to try and estimate what the NF figure will be. All of these estimates are spread around the City and Wall street, so everybody has got an idea about what everyone else is expecting NF to come in at. If everyone is saying that NF is going to be between -63k to -57k, maybe two weeks before it's released, traders and fund mangers are going to try and alter their positions before the rest of the market - the estimate is being priced in to the market.

Now, lets say that the Actual figure comes out at -48k. At first glance, this might look like a bad figure. But this is old news, the market has known for a couple of weeks that the economy was going to lose jobs - the new news is that the analysts estimates were wrong by 10k ish, it's not as bad as we though it was going to be, and so the market has over estimated the NF figure, and priced in too many job cuts. At this point, all the traders and fund managers who built their positions around the -60k figure are thinking "sh!t, I've sold too much, time to buy some of it back". In this case then, a NF figure of -48k is percieved as good news by the market.

So, if you want to trade around the news, in a sense you have two options: First, you can trade new news as it comes into the market - for example a FED speaker. Secondly, you can trade the new news built around old estimates - the reaction(for instance, +12k for NF as described above).

You can't just say "rates are going up, so the dollar will fall", because by the time you have realised, you are way too late to join the party.
MrGecko is offline   Reply With Quote
Old Jul 5, 2008, 8:52pm   #6
Joined Feb 2008
spanish89 started this thread I sorta do understand what you mean...
But then logically shouldn't you all just do the opposite to what has already been priced in??


Like if we all knew ecb was going to raise rates, and everyone expected the euro to rise and so oil to rise, therefore everyone would have been buying the euro and the oil over the days/hours in advance..
So then when the news then is confirmed or the data is out offically and is exactly the same or only a little bit worse than expected, so the market will then recover back as the panic and speculation would all be over and market would have become overbought.


So is it correct to say that nextime some data is coming out like nonfarms, cpi, oil inventories...
That providing the number isnt much worse than expected that you should then buy into the market quick as it will rise??
spanish89 is offline   Reply With Quote
Old Jul 5, 2008, 9:29pm   #7
 
arabianights's Avatar
Joined Jan 2007
You're starting to get it
__________________
World's leading STIRs chatroom - www.propboards.com - register, then click on chat. Don't let the lack of posts on the forum put you off - the action happens in the chatroom. Targeted at locals, but hedge funds, brokers (including IDBs), market makers, and a few sizable amateurs are all represented. When it's quiet, banter is encouraged and anything goes.

No nuisance spread betters please. Anyone else welcome.
arabianights is offline   Reply With Quote
Old Jul 5, 2008, 9:35pm   #8
Joined Mar 2005
Spanish89,

The way I trade the numbers is to draw up a half hour chart and wait at least half an hour for the numbers to be digested. You often get a "spike bar" which typically blasts through a small range the market has been trading in the run up to the numbers release.

This spike bar gives you a number of trading options:

Let's say there has been a sell-off, for example:

(1) You can put a resting sell limit order at the top of the spike - this is effectively where the heavy selling came in and market participants remember this.

(2) Enter a resting sell limit order at the bottom of the range it broke out of. This is the first test of a breakout point, and should offer good resistance at first aswell.

If you wait for an additional half hour you get some more patterns.

Joey
Joey25 is offline   Reply With Quote
Thanks! The following members like this post: rags2riches
Old Jul 5, 2008, 11:43pm   #9
 
millsy500's Avatar
Joined Dec 2004
Quote:
Originally Posted by spanish89 View Post
I sorta do understand what you mean...
But then logically shouldn't you all just do the opposite to what has already been priced in??


Like if we all knew ecb was going to raise rates, and everyone expected the euro to rise and so oil to rise, therefore everyone would have been buying the euro and the oil over the days/hours in advance..
So then when the news then is confirmed or the data is out offically and is exactly the same or only a little bit worse than expected, so the market will then recover back as the panic and speculation would all be over and market would have become overbought.


So is it correct to say that nextime some data is coming out like nonfarms, cpi, oil inventories...
That providing the number isnt much worse than expected that you should then buy into the market quick as it will rise??
No. Heres a quick example, if the banks or who ever are bearish, good no's come out, they will use this opportunity to dump.
millsy500 is offline   Reply With Quote
Old Jul 6, 2008, 3:36am   #10
Joined Feb 2008
spanish89 started this thread Um so how am i meant to be able to workout how the market will react when the number comes out as expected or only a little worse than expected though??

Because my style of trading is a mix of scalping/position trading for a few hours - days, so i need to be able to use the numbers coming out to my advantage inadvance of them being released offically, since i do low £ per pip, so lots pips.


Because i made £144 on the ftse last time nonfarms came out just a little worse than expected (although the $18 oil surge helped that).

But on previous occasions when cpi or nonfarms came out worse than expected or even exactly as expected it still resulted in dow falls...,
but this time it did the opposite.


But so how can you try to workout as best as possible inadvance what the number will do??
spanish89 is offline   Reply With Quote
Old Jul 6, 2008, 3:42am   #11
Joined Feb 2008
spanish89 started this thread And the 2nd thing was when trichet and bernanke speak, they give the old polictians rant!!

So they dont actually ay anything outright in either way about the thing they are speaking about,
they just keep repeating a few positive targets that they are trying to achieve in the future, they say theyve done goodso far, but are going to still tyr harder in future to keep economy in perfect balance and just running smoothly, and then just mull over and repeat that all again about 6x, and then again when asked questions by reporters.


But so what ways and things can i be looking for to tell me what they are eally actually saying and so the impact it will have on the market???


I remember before trichets speech i asked the guys in the chatroom 'So is he actually gna say 'yh we raised interest rates and this the last time' or 'yh done it today, and maybe in a few months again', or would it be more subtle, and if so what sorta wards or phrases....??

They ofcourse just became all sarcastic n laughing and so didnt answer my question.


But so im asking people on here now, if they arent gna just say 'yep we gna raise again in a few months if euro falls to x level or if inflation reaches x number, what words and phrases do we need to look for????



Thanks
spanish89 is offline   Reply With Quote
Old Jul 6, 2008, 8:08am   #12
 
new_trader's Avatar
Joined Jan 2006
Exactly

Quote:
Originally Posted by shadowninja View Post
You need a serious edge to win.
Correct.
__________________
"It always pays a man to be right at the right time." - Jesse Livermore | Less Marx, More Mises

CLICK - My Trading Journal
new_trader is offline   Reply With Quote
Old Jul 6, 2008, 8:41am   #13
Joined Jul 2003
Spanish, those that move the markets and have a significant interest in being on the right side, either ‘know’ or at least have a far more well-informed (expensive!) idea than you, ahead of the news, what the news is going to be, or more likely to be and more importantly, what the reaction to that news is likely to be. Sometimes, they help that reaction along a little.

You don’t stand a chance is you think you’re going head-to-head with them.
TheBramble is offline   Reply With Quote
Thanks! The following members like this post: Joey25
Old Jul 6, 2008, 9:52am   #14
 
Charlton's Avatar
Joined Nov 2003
Spanish

TheBramble is so right.

IMHO I think you would do better to resort to technical analysis rather than macro-economics at this stage, look at other longer-term timeframes and look to identifying high probabilitiy setups supported by good money management. Don't attempt to predict the market at this stage on both limited access to the facts and limited experience of it. It might appear to work but that is most likely due to chance. What you need to do is to shift the balance of probability in your favour and the easiest way to do this is by using technical analysis to react to what price action is doing right now.

You are clearly enthusiastic, but this is coupled with a degree of impatience. Trading does require quite a bit of time and research. Despite the criticisms you have had from some quarters (some justified I believe), at least in this thread you are asking for help and trying to learn and some (at least) are trying to support you with their advice.

I think, though, that you have to work out your priorities in life at this particular point in time. You are young and perfectly entitled, for example, to go out clubbing all night and get up mid-afternoon, but don't expect to make serious money during this period. Trading requires research and dedication for this to happen and it may be that this is something you may need to postpone until you are ready to make that kind of commitment.

If you are ready then look around the site for technical strategies that you feel comfortable wtih and spend time researching them. Do as you have done on this thread and ask for advice and I think you will find others supportive.

Good luck

Charlton
__________________
Onwards and Upwards
Charlton is offline   Reply With Quote
Old Jul 6, 2008, 11:46am   #15
 
barjon's Avatar
Joined May 2003
I've deleted a few posts to try and keep this thread on-topic and to avoid it deteriorating into another personal slanging match. One would have had to go anyway since vulgar and offensive language , whether cleverly spelt or ******'d, is verboten.

cheers

jon
barjon is online now   Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
A winner priced out of the market Camelot Spread Betting & CFDs 49 Jun 15, 2005 1:55pm
Market News oatman Educational Resources 5 Nov 3, 2003 5:14pm
Good news-bad news and the US market… Riz Indices 1 Feb 6, 2001 6:29pm

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)