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Soultrader

Trading The News

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Here is an interesting trade I took the other day. Thought I'de share this strategy.

 

The chart below shows Feb. 14th, 2007, the day Bernanke spoke at 10:00am EST. Now the markets did absolutely nothing until 10am. Everyone was waiting for Bernie to speak. On Fed days the markets usually do 1-2-3 move. (1-2-3 moves are... initial move up/down, reversal, and then third wave back in the original direction). However on Bernie speeches, the markets tend to just GO. The key to playing these moments is to get in early and not chase. Moves are usually very fast on the YM and they can take off over 30+pts in a matter of seconds.

 

attachment.php?attachmentid=804&stc=1&d=1171574335

 

Okay.... lets get back to the chart. Price stalls right above value high pivot using it as support twice. The YM is pretty much stuck in a 15pt range from 12685 to 12700. Now what I did was use a bracket order with a buy stop at 12705 and a sell stop at 12680. The strategy is to get in asap in the direction of the move.

 

The important part is in this strategy is to pick your buy and sell levels carefully. Why 12680 and 12705?? 12683 is value high. My sell stop is placed 3 ticks below this value high pivot. The play would be to ride it down to value low at 12651.

 

Now, take a look at the chart below. 12703 is 2/9/07, Fridays high. 12700 is also a key psych level making this mark extra key. So my buy stop is placed at 12705.

 

attachment.php?attachmentid=805&stc=1&d=1171574514

 

 

The markets did go and rally for about 30pts after the Bernie momo breakout and another 30pts in the afternoon. Take a look at your past charts, practice it, and tweak it. It's a pretty easy strategy but the key is picking your two buy/sell levels.

ymnewsplay.jpg.d120c30e86375108d79efacf7de2efdd.jpg

ymfridayhigh.jpg.55a2ba48b4356bf77ed3bbdfd7c31098.jpg

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There are not many news events that are good for a straddle but the quarterly Bernanke testimony is one of them. I set up hotkeys for a straddle on my platform and hit them 2 seconds before 10 am, that way you can keep the straddle tight and get in at the best level. It's best to use stop-limit orders so you don't get slipped too much.

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Interesting notouch. How do you set up your stop-limits? I've never used that order-type before. I am currently researching the Bernie testimonies for a pattern and will add this to my setups once my research is done.

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If you use stop orders you're exposing your account to unlimited slippage at the time when the risk of slippage is highest. With a stop-limit order you can limit exactly how much slippage you're willing to take. How you set up your stop-limit order depends on what volatility you're expecting and how much slippage you're willing to take. Also make sure your order is held at the exchange rather than at your broker.

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notouch, so how do you set up your stop limits? Do you specify how much slippage you want to take? I've never used them and am curious to learn more. The way I understand it is, let's say the market is moving up fast. You set a buy-stop order at say 800.00 on the ER2, for example. The moment the buy-stop is triggered, the order turns into a buy-limit order at a pre-determined amount. So, if I want no more than 5 ticks slippage I would set the buy limit order to 800.50. Is that how it works?

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keymoo,

 

If you set your buy limit at 800 flat.. you will get either a partial or full fill at 800 exact. If you get filled half of your position at 800.... but your other half never gets through, the half position will never be filled. This protects you from getting filled let's say a point away from your market order.

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notouch, so how do you set up your stop limits? Do you specify how much slippage you want to take? I've never used them and am curious to learn more. The way I understand it is, let's say the market is moving up fast. You set a buy-stop order at say 800.00 on the ER2, for example. The moment the buy-stop is triggered, the order turns into a buy-limit order at a pre-determined amount. So, if I want no more than 5 ticks slippage I would set the buy limit order to 800.50. Is that how it works?

 

That's exactly how it works.

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A very interesting concept. I have used a strategy similar to this to trade FED day and it does work although the risk I had to deal with was that I had to set up an OCO plus stops and targets on two trades in a very short period of time. If I got it wrong and placed one of my orders too close to the market I could get stopped in on a false move (eg not on move 1 of the 1-2-3)

 

Does anyone know where I can get a timetable of these Bernanke statements?

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Guest KhurramNaik

A good resource to use as well is briefing.com/investor to get economic indicator releases. They also let you know which ones matter, what the data says about the economy and what the consensus expectation is.

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Hi Millard,

Thanks for that link to news on FOMC numbers, but I was referring to Soultraders initial posting that said...

 

"Everyone was waiting for Bernie to speak. On Fed days the markets usually do 1-2-3 move. (1-2-3 moves are... initial move up/down, reversal, and then third wave back in the original direction). However on Bernie speeches, the markets tend to just GO."

 

I'm keen to know where I can find out about this Bernie speeches?

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What, you want the actual transcripts of his speeches? Or just to know when he's due to speak?

 

The actual dates & times will be available on the calendar, one of which KhurramNaik recommended. There are one or two others doing the rounds. I guess if you have a feed into one of the relay channels, you'll get an abridged summary of his dialogue if it warrants it. The business cable facilities such as Bloomberg or CNBC occasionally screen them too.

 

The important part is knowing when he's speaking, what the agenda is & the relevance to the market.

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The only Bernie speech that really moves the market is his quarterly testimony. It's quarterly so not too hard to work out when the next one is. In all his other speeches he tends to avoid making controversial statements.

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My approach, if he is to speak , just watch price action and volume, the smarter people who knows what the heck he's talking about will lead the way.

 

I not only try to keep trading simple, but I'll dumb it down to my level of understanding.

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Are these Bernie's testimonies the most important news to trade? I never traded one, but will make sure to try the next. So far I have traded but the rate statements and some others like nfp, cpi and ism. And crude oil stocks when I remember.

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As caveat I think newbies should not be trading the news until they get a good few years under their belt.

 

On the otherhand I personally use Ben Lichtenstein's traders audio s&p 500 squawk box broadcast to get a context of how the locals and commercial traders on the trading pit floor are reacting to major news and I'll take a position in their direction if there is conviction in the move.

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As caveat I think newbies should not be trading the news until they get a good few years under their belt.

 

On the otherhand I personally use Ben Lichtenstein's traders audio s&p 500 squawk box broadcast to get a context of how the locals and commercial traders on the trading pit floor are reacting to major news and I'll take a position in their direction if there is conviction in the move.

 

How and/or when do you know the conviction is there? Sure you've got some signal for acting?

 

Thanks

Kuokam

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I too would suggest that generally a trader avoids trading the news unless you have adequate experience under your belt. Rather an astute trader would be focusing on deciphering how the news is being interpreted by the market. To quote

 

“All media exists to invest our lives with artificial perceptions and arbitrary values” Marshall McLuhan, (1911-1998)

 

With this in mind I believe the news is often a misdirection to what the smart money is doing or simply elaborate chit chat to fill the void of airtime.

 

Got this guide to a trader interpreting the news from an article i read recently:-

 

The following table from an article "How to trade the news" at iTradePod displays the basic news/market sentiment relationship:-

 

 

 

[LT Direction News DT Direction Sentiment Indication

 

1. UP BEARISH UP VERY BULLISH

 

2 UP BEARISH DOWN NEUTRAL; EXPECTED

 

3 UP BULLISH UP BULLISH

 

4 UP BULLISH DOWN VERY BEARISH

 

Hope this helps.

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How and/or when do you know the conviction is there? Sure you've got some signal for acting?

 

Thanks

Kuokam

 

 

Koukam,

 

An example of typical directional conviction is when Ben mentions that Locals are stuck Short with Commercials raising Offers (going Long).

 

At that point I am usually already Long (depending on the Market Profile type of open) with the Commercials and will add further portions if/when Ben shouts out that the Locals have reversed their prior Short bias to join the Commercials on the Offer, a heads up of further momentum in the upward price action.

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