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Fairly new to currency futures trading, and looking for a explanation of what exactly is happening in the market when this type of behavior occurs:
In watching currency futures markets, during regular trading hours I've noticed times where the bid/ask will practically dry up and price will rapidly move in one direction for a several minute burst, then orders come back into the market and price will usually come back to settle very close to where it began. Can anybody explain what is making the markets do this? What is triggering hundreds of orders to be pulled off seemingly all at once? What can be deduced for this behavior? Is this HFT manipulation, or is the market trying to "do" something?
Any insight would be appreciated,
Thanks,
Can you help answer these questions from other members on NexusFi?
The simplest answer would be a news driven event. I.e. if your talking about this morning, between 8:28am EST and 8:31am EST, we had NFP release that caused the market to move. What happens, is the HFT or Hedge funds, pull orders from the market and wait for the dust to settle before getting back in. Any News driven event will see this type of act in any given markets.
From a trading POV, can we make anything from the behavior of the spike? For example, suppose from a daily/weekly timeframe I'm expecting continued selling, but there is an intraday spike up from news release. It might be hard to answer in a general sense, but how much stock do you put into these fluctuations in relation to the direction of the market beforehand? From what I've noticed, these don't seem to be trend changing past intraday, would you agree?
If you ask that question 20 times, you'll get 20 different answers. I would say, it's highly advised by many of the "smart traders" on this site that you stay out of the market during those times, In terms of scalping that is. Personally, i don't find any useful information prior to an event when the market spikes in either direction.
There are many variables with a news release that could make it a trend changer or just a detour to the destination. If your trading a market as a swing, you'll have to read the information released and proceed accordingly. Sometimes on the fly, which makes it that much harder.
Attached you see an older chart by Nanex that graphs the market depth +/- 2 mins around a non-farm
payrolls release:
Source: Nanex
You see bid/ask virtually drying up going into the data since big players don't need gambling. Thus they withdraw
their limits down to the point where only "obligatory" limits by market makers and retail bus limits are left.
Microseconds after the news release and its evaluation by algos the institutions get back in and the "normal"
market depth is restored (regularly much faster than it decreased going into the data).