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Northern California
Experience: Intermediate
Platform: Ninja Trader
Broker: Amp Futures/ Zen-Fire
Trading: YM and CL
Posts: 2,109 since Jun 2009
Thanks Given: 1,783
Thanks Received: 3,304
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This is an excerpt from a book by NoBSDayTrading.com..........
www.NoBSDayTrading.com
CHAPTER 9: TRADING ECONOMIC NUMBERS
"How do you trade economic numbers?"
VERY, VERY, CAREFULLY.
If you are an inexperienced trader, do not attempt to make trades right after major economic
data is released. Do not do it. I'm warning you. And absolutely DO NOT HOLD A TRADE
INTO A NUMBER. If you want to wipe yourself out at the fastest possible rate and experience
what it's like to have a broker call you and tell you that he needs more money for a margin
call, feel free to do this.
Economic numbers can account for a large part of your gains or losses. I have seen
unemployment numbers miss by 150,000. I have seen the treasury futures go straight up 3
full points in a matter of seconds (this is $3,000 per contract). I have seen people lose huge
sums of money during these times. Wait for the number to come out and then be very careful
about trading for the next 10 minutes. If you do trade, look for edges and scratch or take
small losses if the market doesn't go your way immediately. Markets which may normally
have a 15 tick range over the course of a day may move 15 ticks in 30 seconds.
The best thing you can do until you begin to understand the risk is just sit and watch. There is
a lot of opportunity around numbers but you have to be fast and you've heard me say "do not
hesitate" many, many times throughout this book but I'm going to say it again. Do not
hesitate. Especially around numbers. Hesitation will not cost you another 2 ticks. It will cost
you another 10.
Click here
to look at the upcoming economic calendar.
Briefing.com: Economic Calendar
This calendar will show all of the numbers which are coming out over the next month. The
date, the time, the actual number (after it is released), the Briefing.com prediction, the
consensus prediction (from various other sources) and the prior number (last month's
number). You need to know what the consensus is because if the number misses in a big
way, it's going to cause some serious movement. Example: everyone is expecting non-farm
payrolls to be up 60K and it comes out down anything. However, if everyone is expecting it to
be up 60K and it comes out up 40K, this will cause an initial push but the push might be shortlived.
When a number misses by a small amount, do not immediately jump on board. Don't
go the other way right away either. Just watch. When the market misses in a big way, you
may not want to jump on board because it's going to be really thin and volatile but whatever
you do, don't go against the momentum. Any reversal setup I mentioned in the chapter on
entry strategies goes out the window during big moves around economic numbers. Don't
step in front of a train. You'll lose.
The major numbers to watch are usually:
www.NoBSDayTrading.com
Unemployment (non-farm payrolls)
ISM Index
CPI
PPI
Consumer confidence
Michigan Sentiment
Retail sales
Philadelphia Fed
These days, the housing numbers are also causing some reaction. As well as oil inventories.
It's tough to call what numbers will or will not have an impact so the best thing you can do is
make sure you are watching when each one comes out. The 8:30a.m. numbers tend to
cause more movement than the afternoon numbers. More people trade in the morning than
in the afternoon. Think it's a coincidence?
A word on the FOMC policy statements (Federal Reserve statements):
I don't trade the FOMC statements. Here is why. Inevitably, it does create action. But the
action is short-lived. The number comes out at 2:15p.m. A lot of people do not trade around
the FOMC. The moves are sharp and if you get caught on the wrong side, you will not make
your money back that day. As soon as the action dies down, which usually only takes 15 or
20 minutes, the market flatlines and everyone goes home. Everyone who managed to make
money during the move, anyway. If you lose, you will be sitting there with the rest of the
losers, scratching your head, wondering how you managed to lose 12 ticks in 2 minutes and
hoping for a miracle trade to save your day. It will never come.
A few more things to be aware of:
If the market suddenly gets really thin and it goes from 500 bid/1000 offer to 50 bid/30 offer
and you don't know why, get out of any trade you are holding. There are many different
things which can cause this.
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Bernanke or one of the Federal Reserve governors might be speaking.
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A treasury auction might be taking place. These usually happen at 1:00p.m. Eastern
on Tuesday or Wednesday. The CBOT website has a schedule.
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A major company on the Dow or S&P 500 might be releasing an earnings report.
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A crop report is about to be released.
●
A major financial news story just broke.
Etc. If the market gets thin all of the sudden, be very careful and turn on your television to
find out if something major has happened.
Also, be careful around rollover periods. This is when position traders start unloading the
front-month contracts and moving into the next-month contracts. For example, in the
treasuries and the equities, traders will start getting out of June contracts and getting into
September contracts or get out of September contracts and move into December contracts,
etc. The markets tend to get a little weird for the two or three days leading up to expiration.
Exercise caution and cut your size.
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