This is my first post on this site. I am a long time lurker and I have gained an enormous amount of valuable information from everyone on this site and consider myself fairly well educated on a broad variety of topics. A big thank you to all who contribute here.
I constantly read about how important it is to be flat during major economic news like FOMC, NFP, CPI, etc. Much of what I have read is in regards to day traders who are using leverage and are flat by the close. For obvious reasons I can understand why someone would need to be flat for these releases as it might be very hard to exit when liquidity disappears as the data is released. What doesn't make sense to me is how a swing trader would handle position management during these times.
If I hold a position for say 1-3 days then there is a good chance I will be holding through those numbers. Yet slippage is still a concern because no one knows far the market can blow one way. For example, if you look at the attachment and took the hypothetical trade you would have done extremely well....the problem is the result is largely due to being positioned before the FOMC minutes. So this approach, even though it may have been a well thought out trade, takes the appearance of gambling on the data.
The big question I have is this - Is swing/position trading essentially a bet on the expectation of the data/news?
Day trading and scalping is easier to answer - you are trading in and out of order flow that is always in the market and not necessarily driven by a high impact announcement. Sorry if this was long winded. I have pondered this for a while and figured maybe someone here would have some input.
It isn't the reaction to any particular event that I am interested in. I just wanted to get a better idea of how swing traders manage their positions as there are always events of one kind or another that can cause these gap like moves.
It seems like one could easily be positioned based on some form of analysis whether it be TA or market profile and if the timing is right, an event takes place capturing a large profit or loss.
At what point do we say that is part of the trade vs. that is pure gambling?
Put it simply, if you are a trader holding for more than 1 day (let's say 2- 4 days) that would suggest that you're looking to capture (with one single trade) more ticks than what the average daily range is.
My take is that the impact most economic data releases could have on your trade is (relatively) negligible in that case.
A basic example: taking into account historical CL data (discarding how CL is behaving as of late), the ADR for that instrument can be roughly 100+ ticks. By opening a position over 3 days you'd be looking to make about 300 ticks in terms of range. Weekly CL data releases can affect the price in the range 20-50 ticks, so they would represent a fraction of the total range over a larger period.
Of course the above is an oversimplification. There are factors to consider when trading over a multiple-day period, such as how medium-term macroeconomics may play out and affect your instrument being traded. If you're getting short because you think there's going to be an oversupply of crude oil and then a combination of factors (e.g. data release, OPEC announcement, etc.) influences the trend, that may invalidate your original thesis.
I have seen experienced traders say - for instance - that if they have a trade open the same day and a data release is approaching they may decide to close it or to keep it depending on how many ticks they are in profit. For example, if you are in profit by X amount and you think the average data release affects the market by Y, you may decide that the Y is a good risk/reward ratio for you to stay in the trade. Or to close it if the risk is not warranted.
Clearly certain data releases carry more weight than others - a combination of the data release general importance with the figures being released that specific day may impact the volatility and the general trend so that the trade's profits could be enhanced or diminished.
But - as a broader statement - I'd say that the longer your time horizon, the more negligible these data releases are. If you're day trading then you may want to steer clear of opening a trade near any data release that may affect your product (unless you know how to play them). If you're swing trading on the other hand, there's a bit more leeway.
Analysing larger time-frame periods as well as matching how data releases affected a certain market should help also.
I hope it makes sense?
The following user says Thank You to xplorer for this post:
Just a point about liquidity: assuming we're talking popular futures products (and also assuming this is a retail-level conversation), it's never 'hard to exit' any trade per se, even during a data release.
But because of liquidity drying up, you may find sharp market movements, which of course may go either way. So you would still be able to exit but a considerably different prices than you would otherwise normally expect.
I am a real person, Eyal Mor. Nice to e-meet you. Yes I work on analysis company, like other people here that have a job. I didn't advertise or suggest to use our product. I tried to help this guy that ask about volatility and economic events. I do have experience and access to data and analysis because where I am working, I believe that it's not hurt the forum, this forum could benefits from this too.