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Trading the Jam way

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Juno Beach
Trading Experience: Advanced
Platform: Ninja and TS
Broker/Data: Optimus Futures / Matt
Favorite Futures: multiple
JamTheTrader's Avatar
Posts: 135 since Sep 2009

Importance of news

In this next section, I am going to teach on the importance of news as a catalyst to drive market action.
Importance of News
It's not enough to only know technical analysis when you trade. It's just as important to know what makes the market move.

Behind every major market move, there is a fundamental force behind it. This force is called the news!

To understand the importance of the news, imagine this scenario.
Let's say, on your nightly news, there is a report that the biggest software company that you have stock with just filed bankruptcy.
What's the first thing you would do? How would your perception of this company change? How do you think other people's perceptions of this company would change?
The obvious reaction would be that you would immediately sell off your shares. In fact, this is probably what just about everyone else who had any stake in that company would do.

The fact is that news affects the way we perceive and act on our trading decisions. It's no different when it comes to trading futures and currencies.

Why Trade the News
The simple answer to that question is "To make more money!"
But in all seriousness, as we learned in the previous section, news is a very important part to the market because it has the potential to make it move!

When news comes out, especially important news that everyone is watching, you can almost expect to see some major movement. Your goal as a trader is to get on the right side of the move, but the fact that you know the market will most likely move somewhere makes it an opportunity definitely worth looking at.

Dangers of trading the news
As with any trading strategy, there are always possible dangers that you should be aware of.

Here are some of those dangers:
Because the market is very volatile during important news events, spreads and fills can be wide and difficult to get. This increases trading costs and could hurt your bottom line.

You could also get "locked out" which means that your trade could be executed at the right time but may not show up in your trading station for a few minutes. Obviously this is bad for you because you won't be able to make any adjustments if the trade moves against you!
Imagine thinking you didn't get triggered, so you try to enter at market... then you realize that your original ordered got triggered! You'd be risking twice as much now!

Economic Indicators
It is an amazing process that happens each morning that major statistics are to be released in the US. A group of global reporters go into a dingy government building with orange plastic chairs, this room and time is referred to as “lockdown”. All communication with the outside world is now shut off, no cell phones, lap tops are checked to make sure no connection is available to the outside world. Clocks are set to match the atomic time. Why such tight secrecy? Because in the next few seconds these journalists will be the first to lay their eyes on the country's most sensitive economic data. Then 30 minutes before the rest of the world hears about the news, the reporters are briefed so they have time to be ready when the news is “officially released to the world”. 2 minutes before the news is released, the television reporters are told they can leave under escort to prepare for their live broadcast of the report. The remaining reporters and journalists in the room are told “Two minutes left”, then again “one minute left” they are allowed to open their telephone lines but not to transmit. With ten seconds to go, an official countdown begins, then the word everyone is waiting for “TRANSMIT” and all of the reporters simultaneously hit the enter keys on their computers to sent the information.

Employment Situation
Market sensitivity - High
What is it: The most eagerly awaited news on the economy. Are jobs being created? AKA Non Farm Payrolls and Non Farm Employment Change
Release time: 8:30 a.m. (ET); Generally announced on the first Friday of each month and covers the month just concluded.
Source: Bureau or Labor statistics, Department of Labor.
Revisions: Can be major. Revisions can go back two months with each release.

Why is it important?

This is the big one! No single economic indicator can jolt the market as much as the jobs report. Why? To begin with, the employment news is very timely. Second the report is rich in detail about the job market and household earnings, information that can help forecast future economic activity. Third, we are talking about the American worker and their well being. Wages and salaries from employment make up the main source of household income. The more workers earn, the more they buy and propel the economy forward.

How is it computed?

Household survey
It's from the household survey that we derive the widely reported unemployment rate. Each month the government contacts 60,000 homes, a population that included farm as well as non-farm workers, self employed, domestic helpers, and U.S. residents who commute to jobs in Canada and Mexico.
Weekly Claims
Market sensitivity - High
What is it? Tracks new filings for unemployment insurance benefits.
Release time: 8:30 a.m. (ET) every Thursday; covers the week ending the previous Saturday.
Source: Employment and Training Administration , Department of Labor.
Revisions: Minor

Why is it important?
Experts have paid closer attention to this indicator even though it has been around since 1967. Improved monitoring by the labor department has made the series more accurate in gauging labor market conditions. The main appeal is its timeliness. Figures on new filings for unemployment benefits are released every week and are based on actual reports from state agencies around the country. As a result, analysts view this statistic as a good coincident indicator, meaning it accurately reflects what is presently going on in the economy. However, its greatest value is how first time claims for unemployment insurance can influence future economic activity. If a large number of people are losing their jobs every week and applying for unemployment compensation, this will eventually dampen consumer spirits, slash their spending, and cause business to pare back spending. For this reason, the weekly claims report for unemployment benefits is one of the components in the forward-looking index of leading economic indicators.

How is it computed?
Every state including the District of Columbia, offers jobless insurance programs that must conform set down by federal law. The states count all first time filers for a given week ending on Saturday and then transmit the data to the Labor Department in Washington, which releases the figures to the public the following Thursday. Information on “insured unemployment” –m that is, the total number of unemployed currently receiving benefits is published with a two-week lag.

ADP Non-Farm Employment Change
Market Sensitivity: High
What it is: A new and timely report that can serve as a preview of the government's monthly employment change.
Release Time: 8:15 a.m. (ET); published just two days before the Bureau of Labor Statistics puts out the Employment Situation report.
Source: Automatic Data Processing, Inc. (ADP) and Macroeconomic Advisers, LLC.
Revisions: Each release will contain minor revisions in payroll numbers for just the prior month.

Why is it important?
For space scientists, the ultimate goal is to find life elsewhere in the universe. For biblical archeologists, the supreme achievement may be to recover the Ark of the Covenant. For traders, the great aspiration is nothing less than to accurately predict monthly employment numbers by the bureau of Labor Statistics. Money managers have for years been scrambling to devise a statistical measure that accurately forecasts the governments jobs report. The endeavor has proven to be quite difficult. Well, now there is a measure that is proving to be a very good prelude to Fridays Payroll report.

How is it computed?
The manner in which the ADP National Employment Report is put together has intrigued the financial markets. ADP processes payrolls for more than 500,000 firms, spanning many different industries across the country. For its ADP National Report, however, the firm takes a sample payroll of about 350,000 private, non-farm companies that cover some 20 million workers. (In contrast, the BLS attempts to survey 400,000 establishments each month, representing roughly 50 million employees.) ADP then collects payroll information on those companies on a weekly basis, strips out all information that identifies these companies to maintain client confidentiality, and hands the data to Macroeconomic Advisers. Economists are focused specifically on the payroll data that includes the 12th of each month-the same week BLS carries out its survey. Experts from Macroeconomic Advisers crunch the numbers to correct for volatility and seasonal adjustments and then sort the job figures by key categories-total, good versus services, company size, and employment in manufacturing.

Bt tapping ADP’s wealth of payroll information and replicating some methods used by the government, the giant payroll firm and Macroeconomics Advisers believe they have come up with a jobs report that should closely correlate with the BLS’s “final” (net of revisions) figures for private, non-farm payrolls each month.

Personal Income and Spending
Market Sensitivity: High
What it is: Records the income Americans receive, how much they spend, and what they save.
Release Time: 8:30 a.m. (ET); data is made public four weeks after the end of the reported month.
Source: Bureau of Economic Analysis, Department of Commerce.
Revisions: After the initial release, data on income, spending, and savings undergoes revisions for the next several months as more complete information comes in.

Why is it important?
Consumers rule the economy, plain and simple. without their active participation, business activity would quickly come to a standstill. Consumer expenditures are the main driving force of sales, imports, factory output, business and investments, and job growth in the U.S. But to be able to spend, people need a reliable stream of income. As long as personal incomes rise at a healthy clip, so will spending. If income turns sluggish, consumers will curb their shopping.

Other News Events
While these are not the only news events to watch for they are some of the more important ones. You need to have a news source and watch for any news events that are high impact for the market you are trading. Personally, I use Forex Factory as my news provider and any events in red are the ones to watch out for. Here is a link to Forex Factory. Forex Factory

Source material is from "The Secrets of Economic Indicators" by Bernard Baumohl
I highly recommend this book as a part of your trading collection.

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