Forex Signal (Thursday January 5, 2012 – 4:30am EDT) – UK Services PMI

[Stavro D'Amore]

Hello members,

Today we have UK Services PMI is a leading indicator and it is monthly, on the third business day after the month ends. Traders look at this indicator because It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy

UK Services PMI
Forecast 51.5
Previous 52.1
Pair to trade: GBP/USD

Numbers we need:
BUY GBP/USD 53.5
SELL GBP/USD 49

Economical Impact: High
Typical Result: Good for Currency
Occurrence: monthly, on the third business day after the month ends
Spike Probability: Good, we can see 30 pips on initial spike

About our Triggers:
UK services PMI forecasted to arrive at 51.5
We are looking for a deviation of 2.5 to the upside to BUY GBP/USD and a deviation of 2.5 to the downside to SELL GBP/USD
So the summary is we get 53.5 or better I will look to enter a LONG position on GBP/USD and if we get 49 or lower I will go SHORT on GBP/USD
Should this report be triggered, we can expect to see about 30 pips on the initial spike.
This trade will have a good chance of a 30% retrace on the initial spike so I recommend trading the retracement method as stated bellow.

What is it? And why does the market care?
UK Services PMI measures the activity level of purchasing managers in the services sector.
Any reading above 50 indicates expansion, while a reading below 50 indicates contraction.
It gives an indication about the health of the services industry in the UK. Traders watch these surveys closely as purchasing managers usually have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.

A higher than expected reading should be taken as positive/bullish for the GBP
A lower than expected reading should be taken as negative/bearish for the GBP.

Method I use to trade this:
Stavro D’Amore Trading Method

Trade Descriptions
Felix Trading Descriptions

I do recommend spike trading as an option. If you are using an ECN broker or a broker that allows spike fills. Please use no more than a 15 pip limit order to control slippage.

I will look for a 30% retracement in the original spike if our triggers are hit before entering. I will be looking at a 5 minute chart. I will sell half my position as soon as I hit the original high point of the first initial spike and place a SL at the original spike price.

My TP level would be just before a resistance level or if the chart decides to form a support level, looking at a 15 minute chart time frame to analyze this.

Historical Chart and Data for UK Services PMI

All the best

Stavro D’Amore

 

[PipDog]

Going Against the Risk Appetite Trade Will Not Work


Again, a good number that should of driven the GBP up...and the USD down...but, that direction is going against the stock markets.

And, again also, that strategy didn't work out.

The good number did create yet another good short entry point

 

[Boko Maru]

Going Against the Risk Appetite Trade Will Not Work


Again, a good number that should of driven the GBP up...and the USD down...but, that direction is going against the stock markets.

And, again also, that strategy didn't work out.

The good number did create yet another good short entry point

Ha, yeah this was another classic "Pip Dog" trade hehe...Heavy risk aversion going into the release, so I widened my buy trigger out considerably and wasn't triggered at the news. I sold the spike up at 1.5589, then exited for +8 pips, which was way too early of course, but still getting used to this way of doing it.

For this release, I think it's failure had to do with risk aversion certainly, but also just the UK PMI numbers in general. They used to be reliable for huge moves either direction, but the past few months they've been total crap, and also hugely manipulated by the smart money. All those "rumors" of a stronger or weaker number that often get floated 30 minutes before the release, they are of course part of a grand manipulation by the players to get people positioned wrongly, so they can then cash in. Hasn't happened for a while now, but it will again I'm sure.

Congrats on your gains...

 

[PipDog]

8 Pips is Still a Win!

Ha, yeah this was another classic "Pip Dog" trade hehe...Heavy risk aversion going into the release, so I widened my buy trigger out considerably and wasn't triggered at the news. I sold the spike up at 1.5589, then exited for +8 pips, which was way too early of course, but still getting used to this way of doing it.

For this release, I think it's failure had to do with risk aversion certainly, but also just the UK PMI numbers in general. They used to be reliable for huge moves either direction, but the past few months they've been total crap, and also hugely manipulated by the smart money. All those "rumors" of a stronger or weaker number that often get floated 30 minutes before the release, they are of course part of a grand manipulation by the players to get people positioned wrongly, so they can then cash in. Hasn't happened for a while now, but it will again I'm sure.

Congrats on your gains...

99% of the news is currently being all but ignored by the FX markets. This news trade is only acting like the majority of them. But, there is still the hope that, much like this one, the news direction goes against the risk at the moment, which offers a chance to get in a trade running with the risk at the moment...which is sweet. You hardly even need a stop loss...you are usually in profit within moments...and unless the stock markets turn on you, you can pull 50-100 pips often.

Just be patient, have your strategy figured out, and go with it. It's nearly like taking candy from a baby....and that's not the norm in FX trading...trust me.

Oh, BTW, I didn't even try to trade the spike...it doesn't pay right now. I sold 2 lots at 1.5582 (you got in better than me...good job) and took profit at 50, 100, 150, and 200 pips on half lots. $2500 profit (real money, not the virtual crap). Could of done better, but you always can.

That's something else to put in your play book. Never close the whole trade at once. Always split it up after you have booked some profit, then try to really grab alot more with no risk....playing with house money. Try it and let me know how it works.

 

[Stavro D'Amore]

PipDog are you kidding me or the people in the Forum?? 99% is getting ignored! how can you say that call?

News is what is moving the market at the moment! fundamentals are moving the market!

 

[PipDog]

Not Kidding Anyone

PipDog are you kidding me or the people in the Forum?? 99% is getting ignored! how can you say that call?

News is what is moving the market at the moment! fundamentals are moving the market!

Compared to 1,2,3...more years ago, the news reaction in the FX markets is hardly existent. For instance, the UK CIPS Services report last week, hardly a blip up and certainly not enough to warrant a long trade...a think that's what you suggested, no? Then, the US ADP Jobs report last week, blew the doors off in a positive deviation. We got like 12-15 pips on the USDJPY, if that. You couldn't even cover spread on a spike trade. 5 years ago, the UY would've spiked 50 pips and followed through for a hundred likely.

My point was, most of the news is not moving the FX markets enough to justify spike trading. Between slippage and spread, it's extremely difficult to make a profit. And any after news follow through is quickly muted out by the risk appetite of the moment...what the stock markets are doing.

Spike trading is not worth doing. The only game is the Risk Trade...and it is working out very nicely for me...place orders after the news, the spread goes back to normal, no slippage. But...only a person who's wanting to lose money takes a news trade against Risk appetite, at least right now.

Surely you have recognized this? It's been like this for months.

 

[Boko Maru]

My point was, most of the news is not moving the FX markets enough to justify spike trading. Between slippage and spread, it's extremely difficult to make a profit. And any after news follow through is quickly muted out by the risk appetite of the moment...what the stock markets are doing.

I definitely agree with this statement. I've spike traded the news since the days when Felix ran the Forex Diamonds room. Anyone remember "Scatman"? And spike trading today is only a slight shadow of what it once was. Back in the day, I made a crapload of money spike trading, and I don't mean just creaming the bucketshops. I had an ECN Currenex account that filled at news incredibly well. Best spike trade ever? CAD interest rate surprise to the tune of a $12,000 profit in about 6 minutes. That was the "happy time" hehe...

But so much has changed. I don't quite agree that spike trading is not worth doing, but it is much more difficult to make money at it right now, and clearly markets are far more focused on Europe and the risk trade than last month's retail sales, PMI, etc. I didn't make $2500 trading against the spike on this report like Pip Dog did, but hey I made 8 pips. With a large positive deviation on this report like there was, who would have predicted such a strong price move the opposite way unless you were aware of this new paradigm? News traders going long on that deviation got their rear handed to them. All of this is something for any "traditional" news trader to consider if they haven't already.