Do you understand economic data?

[Rambo35]

Before you rush to answer with yes, take a moment and make sure you do. I think one of the most evident cases that plenty of market participants do not understand economic data is the monthly NFP report.

You can tell how many cheer a headline figure of let's say 180K while unemployment dropped by 0.1% and claim the report was good, when in reality we saw a mediocre report which points to udnerlying issues in the labor market (this was just an example and not an actual report so please don't go looking for it). The headline fake on the NFP, as many pros call it, happen quite frequently as so many want a feel-good number.

In order to really understand what the report is saying you need to fully understand the report and dig much deeper which is something the majority don't feel like doing or don't understand how to do and what to look for. They rather rely on a report published on their favorite news channel. In my opinion, you need to understand economic reports if you want to become a successful trader.

 

[Michael "Grimweird" Tan]

As I'm sure you know, I'm a newb, so what follows may well be nonsense. I just felt like throwing in my 2 cents though

I don't really claim to know much about economic data and sort of / kind of don't really believe that traders should take them at face value. What I mean is, "news trading" (As I believe it's called) does happen to be part of my approach to playing the market, but I've been burned enough times to be REAL careful about it.

The problem as I see it, is that for some reason, the market does not always move in the way it's supposed to logically, you may have a very positive report and you'd expect an affected currency pair to go a certain direction based on it, but for some mad reason it goes the OTHER way, or it goes the way you expect for a couple minutes and then inexplicably reverses sharply.

To be honest I don't know why this happens, but it sometimes does. Not too often, but often enough for me to get burned. I'm pretty sure that the couple times it's happened to me wasn't really because I'd "misread" the indications because apparently some more experienced traders were also caught by surprise.

I dunno... As a wannabe scalper, I look forward to these data being released, but I'm far more leery of them now.

 

[Pharaoh]

The complexity also includes data revisions.

Imagine the New Zealand wool production report. Last month, it said 25,000 tons of wool were produced (seasonally adjusted). That was in line with the expected value, so there wasn't much movement.

This month, another 25,000 tons are expected, but the report comes out at 30,000 tons. This is very good for New Zealand's economy, so you would expect a nice spike on NZD pairs.

But wait - last month's report was revised to 40,000 tons. Although that's also good for the NZ economy, it also means this month's production fell 10,000 tons from the previous month instead of increasing by 5000 tons. Now traders are rethinking and second guessing - prices start doing crazy whipsaws, and your simple news trade that would have been very profitable without the revision turns into 50 pips slippage on the stoploss.

 

[LoRio]

Before you rush to answer with yes, take a moment and make sure you do. I think one of the most evident cases that plenty of market participants do not understand economic data is the monthly NFP report.

You can tell how many cheer a headline figure of let's say 180K while unemployment dropped by 0.1% and claim the report was good, when in reality we saw a mediocre report which points to udnerlying issues in the labor market (this was just an example and not an actual report so please don't go looking for it). The headline fake on the NFP, as many pros call it, happen quite frequently as so many want a feel-good number.

In order to really understand what the report is saying you need to fully understand the report and dig much deeper which is something the majority don't feel like doing or don't understand how to do and what to look for. They rather rely on a report published on their favorite news channel. In my opinion, you need to understand economic reports if you want to become a successful trader.

My answer will focus elsewhere.
How will the trading majority perceive the number ? Isnt this the driving force behind news ?
I mean ok , you see beyond the number , but , will anyone trade with that scope?

 

[Rambo35]

My answer will focus elsewhere.
How will the trading majority perceive the number ? Isnt this the driving force behind news ?
I mean ok , you see beyond the number , but , will anyone trade with that scope?

Those who understand the data yes. You often see spikes after a release and then reversals. A season traders understands how the majority may view the data and how they will trade it initially. They wait patiently and then take their positions while retail traders get stopped out. That is why you need to understand the data, be patient and trade. That's just my opinion. The example of Michael Tan above is a prime example of that.