Live Currency Converter

Convert   INTO    

Language: Read This Website In English Language Lesen Sie diese Web site in der holländischen Sprache Lisez ce site Web en langue hollandaise Lea este Web site en lengua holandesa Lees deze website in Nederlandse taal Legga questo Web site in lingua olandese

Combining Economic Releases and Technical Indicators

FOREX Technical Analysis

Rate this item
(1 vote)

Examples of U.S. economic indicators that are clearly tradable, resulting in immediate price adjustment and trading position profits:


MOMENTUM TRADE – GOING WITH THE NEWS
Monthly employment – We focus on the non-farm payroll. Our studies show the number is generally way off the forecast and the resulting U.S. dollar price adjustment over- compensates for the economists’ erroneous estimate (consensus). The combination of being released on a Friday, being the most basic element in forecasting the state of the economy (no jobs, no money, no spending, bad economy and vise versa), and being the first important economic indicator released each month (first Friday of the month), is why the U.S. dollar consistently has a huge move if the non-payroll number is not close to consensus estimate.

Methodology – First analyze technical picture; be as current as possible; consider all relevant information up to within seconds of number actually being released (GMT 12:30). Pinpoint nearby trade signal entry points. Enter stop loss entry orders, if done stop loss exit orders, and an optimistic take profit order just in case of a huge spike.

Enter orders on both sides of the market, based upon your technical analysis. These orders should be as close to the current price as is practical and the orders should be entered just seconds before the number is released.

It makes sense to put orders on both sides of the market for two reasons. 1) If the number is way off the consensus forecast the corresponding price adjustment move would occur regardless of the technical position of the market (whether traders are long or short). 2) If you have a strong directional view chances are lots of other traders do as well; if your view turns out to be wrong, the move will be huge so why miss it. Remember this is a short-term trade, its entirely possible you will book your 100 points profit in seconds or minutes and then you can think about your directional view, incorporating the new information.


CONTRARIAN TRADE – GOING AGAINST THE NEWS
Durable goods – We focus on the fact that the headline number is generally misleading for two reasons. 1) Usually the detail following the headline explains the reason for an unexpected jump or decline. For example, an unexpected jump is sometimes the purchase of airplanes and the economists miscalculated the timing of “booking” the purchase. 2) The revision to the prior month may completely offset this month’s headline gain. The knee jerk reaction to the immediate headline is an opportunity to buy or sell at a price that would not have been possible had the market not reacted until all the information was digested.

Methodology – First completely analyze the technical picture; the charts, moving averages, fibonachi retracements, and also consider whether the market is likely long or short (technical condition).

Ask the question, “Where can the U.S. dollar go if the number is much better than expected – and do I want to have a position against the very near term trend at that price. If so, enter the limit order, a stop loss, and a take profit.

The take profit is important (stops of course are a given, never enter a trade without a stop) because the next bit of information about the headline number just released may cause a knee jerk reaction the other way; if your in it for a quick trade you may get your profit within seconds. If you were looking for a longer-term trade entry point – you got it.

Like employment, the economist are generally way off the mark on durable goods, making it an excellent vehicle to make money on other unprepared traders reacting instead of approaching the market with a well thought out game plan.

 

The following is a list of tradable U.S. economic indicators in order of potential profit from trading them in conjunction with fundamentals:

  1. Non-Farm Payroll
  2. Federal Open Market Committee interest rate change announcement
  3. Retail Sales
  4. Consumer Confidence
  5. ISM Manufacturing Index
  6. Gross Domestic Production (GDP)
  7. Philadelphia Fed Survey
  8. NAPM - Chicago
  9. Durable Good
  10. Industrial Production and Capacity Utilization
  11. Weekly Jobless Claims
  12. ISM Non-Manufacturing Index
  13. 5-YearNote Announcements
  14. 10-Year Note Announcements


These tradable U.S. economic indicators are tradable only if way out of line.

The strategy is to know the consensus; determine what would be extreme and react immediately upon the numbers release. You should have technical points in mind as well as limits of how much above or below the pre-number market price you are willing to deal at to get in the trade. Generally the response is muted however:

  • Beige Book
  • Housing Starts / Existing Home Sales / New Home Sales
  • International Trade / Current Account
  • Chain Store Sales
  • Consumer Sentiment
  • Consumer Price Index / Producer Price Index
  • Personal Income and Expenditures
  • Business Inventories
  • Index of Leading Indicators
  • Factory Orders


Many of the following key indicators do not get the press coverage or attention they deserve but smart investors and traders are aware they are coming out and look at them very closely. Oftentimes these less publicized indicators provide important clues of the more publicized indicators. In addition they sometimes provide great trade ideas. They are:

  • BTM-UBSW Store Sales / Redbook / Motor Vehicle Sales
  • Challenger Job-Cut Report / Help Wanted Index / Employment Cost IndexConsumer Installment Credit
  • Construction Spending
  • Mortgage Bankers Acceptance of Mortgage Applications
  • Wholesale Trade


We track and trade all U.S. economic indicators, in conjunction with the technicals. Our advantage is confidence in a chart point or breakout because we believe in the price action on both a technical and fundamental level.

From experience we also know that most big moves occur after the release of an important economic number. We think this is so because the longer-term traders and companies are paying attention to these numbers and oftentimes decide to open or close big positions based on them. When the long-term players are in the market they unbalance demand and supply creating exaggerated moves that generally persist right through the entire session.

We get in early and try our best to catch as much of the move as we can, knowing that the price change will be much more than should be expected. By doing our homework and visualizing all the possible scenarios beforehand, we act with a game plan, instead of react to price action that appears (but is not based upon the empirical evidence) excessive.

In a nutshell, you will not find us bucking the trend; nor losing money trying to rationalize the extent of the move. Rather you will find us squeezing those last few points out of the trade by holding onto our “overdone” position.


Note:

Jimmy Young is a seasoned institutional forex trader having 20 years of experience with different banks. He headed up bank FX dealing rooms. He is FX profitability consultant to major European private bank. He manages funds and also trades personal money. Between 1981 and 2004 he was a foreign exchange trader at following banks: Societe Generale, Julius Baer, Fuji Bank, Indosuez, Erste, Hill Samuel, Manufactures  Hanover, Paribas, European American. www.EurUsdTrader.com