Three non technical trading strategies examined
Expert: Joseph Trevisani, Analyst at FX Solutions
Topics to be covered during the session:
- Trade de News
- The Contrarian
- Trust the heavens: Financial Astrology
Who is Joseph Trevisani?
Joseph Trevisani has 18 years of experience in Forex trading and management and is a partner at FX Solutions. He is currently Senior Vice President and Chief Market Analyst; before assuming this position he was Head of Institutional Sales. Prior to joining the online trading industry Mr. Trevisani worked at Credit Suisse for 12 years in New York and Singapore as an interbank currency trader and trading desk manager. Returning from Asia he managed the Asian Trading desk and was a proprietary trader for The Bank of Bermuda in Hamilton Bermuda. He has a Bachelor and Masters Degree from Columbia University in New York City. He has been quoted in Reuters, Bloomberg, and the Wall Street Journal, written currency analysis for several internet websites and publications, and spoken at many conferences and industry events.
Session Material:
Introduction
The three trading concepts that we will discuss in these sessions are somewhat unusual in that they do not utilize technical analysis to identify trading opportunities.
The first ‘trade the news’ exploits the difference between anticipation and reality in statistical news releases and is essentially fundamentalist, though in practice it can deteriorate to mere price scalping.
The second ‘the contrarian’ begins with the sensible premise that markets must take profits, and that profit taking represents a profit making window for the astute trader.
The third, astrology, is a surprisingly serious attempt to track the effect of planetary movements on human psychology and the trading markets. I will not be examining the predictive ability of each concept, nor will we look at their ability to generate profits, their ‘track record’. Our focus will be on the basic assumptions and logic of each concept.
We will try to answer the question; do these concepts make sense when applied to the foreign exchange markets?
Trade the News
One only has to take a brief view of any currency chart to notice large rapid price movements at scattered intervals in the record; if the chart covers an extended time the periodic reoccurrence of these moves is striking. Most of these dramatic price moves are instigated by the release of economic statistics.
Currency traders know the effect Non-Farm Payrolls or CPI can have on the market. Unexpected political events can have a similarly drastic effect but since their timing is by nature unpredictable they do not enter into our discussion.
The schedule of information releases for any country or the Euro zone is part of the generally available market information and can be found on almost any market news service. It is the larger macro releases, the CPI, GDP, Non-Farm payroll (NFP) numbers that elicit the most attention, though forward looking indicators, such as consumer sentiment and the German IFO survey can produce volatile reactions as well. Economic statistics are most often collected by the national government; many of the other types of indicators are collected by business or academic organizations.
As the release date approaches the opinions of market participants, commentators, and economists about the pending statistic are collected by news organizations and a general consensus forms as part of the public record.
This expectation becomes a factor that market participants use to formulate their own views on market direction and informs the speculative positions they take. If a strong NFP number is expected traders will be more likely to open a long USD position in the weeks leading up to the release and so on.
The effect is incremental. Clearly the New York market does not arrive Thursday morning, remember that Non-Farm payroll is due the next day, and suddenly take the Euro/Usd up a figure (or down). But by the Friday morning of NFP the expected or consensus number is reflected in the USD trading level.
It is the size of the difference between this pre release consensus number and the real number that drives market movement immediately post release. For instance, if the market had been expecting a NFP of 215,000 indicating a strong US economy and the actual number is 115,000 this wide disparity will cause the USD to fall rapidly as pre- release long USD positions are closed and new short USD positions are established. When the number is at or close to the expectation the market often moves in an opposite direction indicated by the value of the number. This is perhaps counterintuitive, that a strong US economic statistic would cause a fall in the USD. But one must remember that the strong NFP number and the strong US economy it represents were already factored into the pre-release trading rate.
In the above example if the NFP release had been 215,000 as anticipated, it is likely that the Dollar would have declined in reaction, as traders, who were long prior, or perhaps hoping for an even stronger number, take profits on their long positions. In general the greater the difference between the expected release and the actual, the greater the size of the ensuing market move.
When the market adjusts after an unexpected number the price change is normally very rapid, often with large sequential gaps. It is not uncommon for prices to move 40, 50, 60 or more points in a few seconds. In this situation even one minute charts can be deceptive as they normally show the high and low for each minute but not the price movement within the minute. A move that on a one or five minute chart appears orderly comprising the full period in fact takes place in the first few seconds, with the remaining time spent in price action around the new level.
There is no question that scheduled news releases have the potential to incur large volatile movements in currency trading rates. So it would seem that they are an excellent opportunity for the online trader. However, given the twofold nature of these releases, that the pre-release market level incorporates the consensus view of the statistic and that any price movement generated by an unexpected number will be extremely rapid this opportunity should be approached with a good deal of caution.
In the days most immediate to the release the expected number is part of the overall background informing trading and any position taken in reference to the pending release would be subject to the normal vagaries of the market.
There is no specific point where speculation on the scheduled release dominates position taking. After the release it will be difficult to enter into a position quickly enough to take advantage of the move. Given that the majority of the price adjustment takes place in the first few seconds after a release even a hesitation of a few seconds may mean that 2/3 of a move is already gone.
It is unlikely that any trading tactic that entails entering positions after a news release will be able to produce consistently positive results. A similar problem exists for pre positioned entry stops.
They are activated by the price movement after the release so they do not depend on inordinately quick motor skills, but as the price action will often move through wide gaps after the release it is likely that orders will be filled at the next best available price.
If the market makes half or more of the full move in the first few prices, which is common, then the advantage of the trade is greatly diminished. Again, this tactic is unlikely to produce consistent profits because it depends on price action and the fill not on the trader’s view of the market.
Economic and statistical releases are part of the fundamental information for any currency.
They are most useful when incorporated into a trading strategy that ties their information to an overall view of the market.
Speech Material:
FXstreet Moderator (Aug 31, 2006 9:24:01 AM)
Good morning, good afternoon, and good evening to all of you joining us today from different parts of the world. This is Mercè Francisco, Live Session Moderator, and I want to welcome all of you to today's Live Forex Expert Question and Answers session.
FXstreet Moderator (Aug 31, 2006 9:38:23 AM)
Welcome to FXstreet.com Q&A Forex Session. Today’s session will start in 10 minutes.
FXstreet Moderator (Aug 31, 2006 9:51:58 AM)
This Q&A Sessions allows users to start asking live questions from the very first moment of the chat.
FXstreet Moderator (Aug 31, 2006 9:52:08 AM)
Please prepare any questions you may have for the expert. Thank you for joining today’s Q&A Session.
FXstreet Moderator (Aug 31, 2006 9:53:56 AM)
Welcome to the Session. Today I am delighted to welcome our guest speaker Joseph Trevisani, Analyst at FX Solutions (http://www.fxsolutions.com)
FXstreet Moderator (Aug 31, 2006 9:54:04 AM)
Welcome Joseph!
joseph trevisani (Aug 31, 2006 9:54:43 AM)
Greeting to everyone, and thank you for joining this FX Street session. I know it is August and for many that is vacation.
joseph trevisani (Aug 31, 2006 9:55:18 AM)
That is true here in New York as well but it is a good time to become prepared
joseph trevisani (Aug 31, 2006 9:55:45 AM)
for the fall season in FX, a traditionally busy time.
joseph trevisani (Aug 31, 2006 9:57:03 AM)
Technical analysis is by far the most common approach to trading
joseph trevisani (Aug 31, 2006 9:57:42 AM)
but there other less anlytical approaches to market movement and profitability
joseph trevisani (Aug 31, 2006 9:58:12 AM)
one of these ideas we will look at today...trading the news.
joseph trevisani (Aug 31, 2006 9:58:48 AM)
As we all know, volatility is teh key to trading.
joseph trevisani (Aug 31, 2006 9:59:16 AM)
and news particularly perscheduled statistical releases
joseph trevisani (Aug 31, 2006 9:59:34 AM)
are the most dependable providers of instant volatility.
joseph trevisani (Aug 31, 2006 10:00:31 AM)
Tomorrow in New York at 8:30 am is the release of Non Farm Payrolls, probably the most watched US economic statistic currently.
joseph trevisani (Aug 31, 2006 10:01:07 AM)
Consensus for the number is around 125,000, that level is priced into the market.
joseph trevisani (Aug 31, 2006 10:01:18 AM)
particularly for the euro/usd.
joseph trevisani (Aug 31, 2006 10:01:55 AM)
if teh actual number, and you can follow the release tomorrow on your trading system,
joseph trevisani (Aug 31, 2006 10:02:49 AM)
in real time, if the actual number is substantially different than 125,000 the market will react, rapidly and decivesly.
joseph trevisani (Aug 31, 2006 10:03:53 AM)
For instance if the number is 250,000, double the expected the eur/usd, will fall, the usd will strengthen.
joseph trevisani (Aug 31, 2006 10:05:36 AM)
Most likely, and price movements are very hard to predict, the p
joseph trevisani (Aug 31, 2006 10:05:59 AM)
the price change will be very rapid and will take place within a few seconds.
joseph trevisani (Aug 31, 2006 10:06:20 AM)
In situations like this prices
joseph trevisani (Aug 31, 2006 10:06:41 AM)
and move 50 or more points in a few seconds and in very few prices changes.
joseph trevisani (Aug 31, 2006 10:07:28 AM)
Our question is can we capatalize on this price movement in a coherant reliable way?
joseph trevisani (Aug 31, 2006 10:09:14 AM)
it woyudl seem
joseph trevisani (Aug 31, 2006 10:09:19 AM)
that this type fo movement,
joseph trevisani (Aug 31, 2006 10:09:45 AM)
even if we cannot predict the direction, but we can predict the time
joseph trevisani (Aug 31, 2006 10:10:03 AM)
might be an occasion for profitable trading.
joseph trevisani (Aug 31, 2006 10:11:09 AM)
How might we go about
joseph trevisani (Aug 31, 2006 10:11:14 AM)
interacting
joseph trevisani (Aug 31, 2006 10:11:43 AM)
wit this senario. Clearly if we had a short eur/usd position entering the number
joseph trevisani (Aug 31, 2006 10:12:18 AM)
we would have benefitted. But that is not really trading the news.
joseph trevisani (Aug 31, 2006 10:13:11 AM)
That is simply a short eur position, basically a fundamental view on the US and teh Eurozone
joseph trevisani (Aug 31, 2006 10:13:17 AM)
economies.
joseph trevisani (Aug 31, 2006 10:14:30 AM)
Trading the news would entail opening the position after the statistical release, when it is immediately clear what the movement is likely to be.
joseph trevisani (Aug 31, 2006 10:15:39 AM)
In order to do so we would have to go short after the release but before the bulk of the movement had taken place.
joseph trevisani (Aug 31, 2006 10:16:10 AM)
The timing here is the key factor,
joseph trevisani (Aug 31, 2006 10:16:22 AM)
but also the key problem.
joseph trevisani (Aug 31, 2006 10:18:16 AM)
Most trading systems will fill orders, market and entry
joseph trevisani (Aug 31, 2006 10:18:35 AM)
at the market level
joseph trevisani (Aug 31, 2006 10:18:54 AM)
when the order reaches the trading system.
joseph trevisani (Aug 31, 2006 10:19:18 AM)
If the market has already moved the fill price will be teh market price.
joseph trevisani (Aug 31, 2006 10:19:48 AM)
and here we ahve teh key, if teh price actin after the release is for example pre release 30 33
joseph trevisani (Aug 31, 2006 10:21:01 AM)
post release 15- 18, 00- 03, remember the euro is droppign because the US economy is stronger than expected and the prices then remain at 00 03.
joseph trevisani (Aug 31, 2006 10:21:24 AM)
that price change, a 30 point move probably took 1 or 2 seconds
joseph trevisani (Aug 31, 2006 10:22:35 AM)
by the way I ask all of your indulgence for my typing skills.. I hope they do not make the text too difficulte to follow.
joseph trevisani (Aug 31, 2006 10:23:11 AM)
Clearly there is no reliable way to enter a trade post release in a choosen direction.
joseph trevisani (Aug 31, 2006 10:24:44 AM)
and any market tactic or strategy that diminishes the traders control cannnot be a consistently profitable tactic.
joseph trevisani (Aug 31, 2006 10:25:33 AM)
Since statistical releases are part of the fundamental outlook for an economy and hence the fundamentals for and trading currency..
joseph trevisani (Aug 31, 2006 10:26:39 AM)
A more coherant strategy for tradign number or news is to treat the release as part of a fundamental tradeing strategy, a view with a stop onthe other side.
joseph trevisani (Aug 31, 2006 10:27:48 AM)
In the case of the example above, a short euro position, extablished before the NFP release, with a stop to buy back the shsort position somewhere above teh market level.
joseph trevisani (Aug 31, 2006 10:28:09 AM)
Control of your position and your trading is key to success.
joseph trevisani (Aug 31, 2006 10:28:44 AM)
Waiting for the release of a volatile statistic before establishing a position predicated onthat release
joseph trevisani (Aug 31, 2006 10:29:14 AM)
cedes control of the execution to the market movement not to you the traders decision.
joseph trevisani (Aug 31, 2006 10:29:59 AM)
I will be happy to answer any comments or questions that anyone might have
FXstreet Moderator (Aug 31, 2006 10:33:18 AM)
Thank you for that Joseph.
FXstreet Moderator (Aug 31, 2006 10:33:58 AM)
You can now send all your questions. Thank you for your participation.
joseph trevisani (Aug 31, 2006 10:36:24 AM)
The first question is about carry trades
FXstreet Moderator (Aug 31, 2006 10:36:47 AM)
i am interested learning more about carry trades. Libra02
joseph trevisani (Aug 31, 2006 10:36:57 AM)
Sure
joseph trevisani (Aug 31, 2006 10:37:51 AM)
Carry trades attempt to take advantage of the O/N
joseph trevisani (Aug 31, 2006 10:38:21 AM)
roll on currencies.
joseph trevisani (Aug 31, 2006 10:38:42 AM)
for instance
joseph trevisani (Aug 31, 2006 10:39:10 AM)
if a currency had a positive roll, that is you earn interest for holdign the open psition
joseph trevisani (Aug 31, 2006 10:39:37 AM)
you earn a certain amount of interest each eay.
joseph trevisani (Aug 31, 2006 10:40:20 AM)
However, this interest clearly does nto affect
joseph trevisani (Aug 31, 2006 10:40:55 AM)
currency movement, if you were long stg/jpy to earn the roll... that doesnt
joseph trevisani (Aug 31, 2006 10:41:11 AM)
mean that stg/jpy will not fall.
joseph trevisani (Aug 31, 2006 10:41:43 AM)
Teh amount earned on a roll, is always far less than the potential gain or loss from currency movements.
joseph trevisani (Aug 31, 2006 10:42:31 AM)
If you view is that stg/jpy will appreciate then it is an added benefit from the position.
Guest_jvrama (Aug 31, 2006 10:43:25 AM)
Joseph can you tell me where I can find a histogram of the past NFP figures? thank you
joseph trevisani (Aug 31, 2006 10:44:25 AM)
hmmmm...
joseph trevisani (Aug 31, 2006 10:44:46 AM)
I am not sure about a histogram
joseph trevisani (Aug 31, 2006 10:45:43 AM)
but I have found some very useful statistics on Yahoo financial I would try there first, then google search
Aliks (Aug 31, 2006 10:46:12 AM)
the eur has been falling today, what does that mean for tomorrow's release?
joseph trevisani (Aug 31, 2006 10:46:35 AM)
I think todays fall
joseph trevisani (Aug 31, 2006 10:47:47 AM)
is partially due to todays statistics
joseph trevisani (Aug 31, 2006 10:48:05 AM)
which were slightly stronger than expected, but
joseph trevisani (Aug 31, 2006 10:48:23 AM)
I woudl also agree that there is some prepositining for NFP tomorrow
joseph trevisani (Aug 31, 2006 10:48:34 AM)
expecting a stonger number as well.
FXstreet Moderator (Aug 31, 2006 10:49:24 AM)
what would you consider an acceptable range (in pips) to allow a price to go against you after an important news release? Johnda
joseph trevisani (Aug 31, 2006 10:50:16 AM)
If the number is not what you expected I woudl simply cut the position and start over.
joseph trevisani (Aug 31, 2006 10:50:44 AM)
Remember most of these statistics are fundamental economic statistics.
joseph trevisani (Aug 31, 2006 10:51:09 AM)
so if GDP is much stronger or weaker than expected.. that is a fundamental change
joseph trevisani (Aug 31, 2006 10:51:23 AM)
which teh market will incorporate in its view from that moment on..
Aliks (Aug 31, 2006 10:52:08 AM)
what if the number comes in line with the consensus?
joseph trevisani (Aug 31, 2006 10:52:18 AM)
good question...
joseph trevisani (Aug 31, 2006 10:52:30 AM)
that is the trickest and least intuitive
joseph trevisani (Aug 31, 2006 10:52:55 AM)
but I will provide an senario..
joseph trevisani (Aug 31, 2006 10:53:33 AM)
tomorrow the market is expecting 125,000 in NFP... to some degree, a degree very difficult to tell...
joseph trevisani (Aug 31, 2006 10:54:39 AM)
positions have been created expecting that result, let us say long positions..
joseph trevisani (Aug 31, 2006 10:55:20 AM)
the logic being that 125,000 will not prompt the Fed to begin raising rates again and that will be good for the euro and bad for the usd..
joseph trevisani (Aug 31, 2006 10:55:44 AM)
the market under this idea will have gotten long euro going into this number
joseph trevisani (Aug 31, 2006 10:56:22 AM)
soem of those position are all profitable at this point .. after all the market wouldnt be here if someone had not bought..
joseph trevisani (Aug 31, 2006 10:57:04 AM)
there fore the likely move with a 125,000 release is down, because all those who became long in anticipation will want to liquidate and take their profits.
joseph trevisani (Aug 31, 2006 10:57:31 AM)
but liklely is wilnto be a rapid immediately post release move but more gradual.
Aliks (Aug 31, 2006 10:59:37 AM)
you said that the 125,000 level is already priced into the market. Is that why we are seeing a drop on the eur/usd today?
joseph trevisani (Aug 31, 2006 10:59:48 AM)
well
joseph trevisani (Aug 31, 2006 11:00:09 AM)
we also had information out today.
joseph trevisani (Aug 31, 2006 11:01:04 AM)
which though
joseph trevisani (Aug 31, 2006 11:01:13 AM)
largely as expected..
joseph trevisani (Aug 31, 2006 11:01:35 AM)
the PCE price index was 2.4% Y/Y..
joseph trevisani (Aug 31, 2006 11:02:33 AM)
perhaps a indication that inflation remains a concern consequently a usd/Fed positive
joseph trevisani (Aug 31, 2006 11:02:51 AM)
but again
joseph trevisani (Aug 31, 2006 11:03:01 AM)
the ranges have not been pronounced..
joseph trevisani (Aug 31, 2006 11:03:23 AM)
so it is likely that we are seeing normal range movement.
FXstreet Moderator (Aug 31, 2006 11:04:21 AM)
your suggestion is to short euro if the farm payroll is higher number than predicted and at the same time do a stop loss correct. Libra02
joseph trevisani (Aug 31, 2006 11:07:32 AM)
I would say if you feel the NFP number will be better than expected and you want to position for that event, I think a euro fall is likely if the NFP number is much stronger than expected and a preexisting short euro with a stop above would answer. However I have no more idea than you as to what the actual NFP number will be.
FXstreet Moderator (Aug 31, 2006 11:08:16 AM)
So what you are saying is not trade the release of the actual value but that of the estimated value? Lucian
joseph trevisani (Aug 31, 2006 11:09:30 AM)
The market reacts to the difference between teh expected and the actual and of course to the degree of difference. but it is important to remember that is the initial reaction.
joseph trevisani (Aug 31, 2006 11:10:04 AM)
If the market expected 400,000 NFP tomorrow and 400,000 arrived ,
joseph trevisani (Aug 31, 2006 11:11:02 AM)
it would still mean a very strong fundamental for the US economy so a stronger UD trend would be powerfully reinforced.
joseph trevisani (Aug 31, 2006 11:12:07 AM)
There are two time frames
joseph trevisani (Aug 31, 2006 11:12:39 AM)
to the market reaction to numbers sthe initial is between the expected and the actual..
FXstreet Moderator (Aug 31, 2006 11:12:48 AM)
LAST QUESTION
joseph trevisani (Aug 31, 2006 11:13:03 AM)
teh longer time frame is the fundamental meaning of teh statistic.
FXstreet Moderator (Aug 31, 2006 11:13:06 AM)
There is little info on financial astrology apart from some webs devoted to the Gann methods. Could you name some links that could be useful for a better knowledge of these techniques? jOHNDA
joseph trevisani (Aug 31, 2006 11:14:34 AM)
Yes
joseph trevisani (Aug 31, 2006 11:15:29 AM)
good question but in fact I have changed the topic for the last session to Fibonacci retracements and elliot waves
joseph trevisani (Aug 31, 2006 11:16:30 AM)
I think these two topics will be more useful to traders. But just to let you know, there are tradign systems that use a form of planetary positioning for stock predictions.
joseph trevisani (Aug 31, 2006 11:17:02 AM)
try a google search under
joseph trevisani (Aug 31, 2006 11:18:17 AM)
the jupiter-saturn cycle
joseph trevisani (Aug 31, 2006 11:19:49 AM)
folks,
joseph trevisani (Aug 31, 2006 11:20:29 AM)
I woudl like to thank all of you for participating in this session. I hope the discussion has been helpful.
joseph trevisani (Aug 31, 2006 11:21:02 AM)
and informative. If anyone has further questions I can be reached at Joet@fxsol.com.
joseph trevisani (Aug 31, 2006 11:21:28 AM)
good afternoon, evening and morning to all
FXstreet Moderator (Aug 31, 2006 11:21:35 AM)
Thank you very much for that Joseph Trevisani.
FXstreet Moderator (Aug 31, 2006 11:21:55 AM)
Thank you all for your participation. See you soon!
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