Part VII. Market Response on News. Commander in Pips: One of the trading strategies that widely spread over the market is “news trading”, when traders just wait for significant macro data releases from Big 7 countries and maybe from some others. All that they do is make trades that are based on news releases. The foundation of their trades is the difference f the real number from expected number. The greater the difference is the stronger the move on the market could be. Although it looks simple in description, actually there is no rule of thumb that could be applicable at all cases – just use it and you will be richer than Mr. Buffet. No way. This trading system has its own stumbling blocks. Pipruit: And what are they? For me this system looks nice and pretty simple – just trade in the direction of surprise, that’s all. Commander in Pips: And when you will treat difference as surprise? What conditions will you apply to specify “surprise number”? Pipruit: Hm, good question, Sir. Actually I have not thought about it yet… Commander in Pips: I see. Ok, let’s continue with the data release moment. Usually market reaction consists of two stages. The first one is very short and comes usually during some seconds after the data has been released. This stage could last for some minutes. When the first rush comes down a bit and traders make some preliminary assessment of released data, the market starts to show a longer-time move due to the released data. The first reaction could be as along with continuation or as opposite to the following move. Usually the second direction is the one that the market will follow in the nearest future to price-in new numbers. So, how to explain the initial splash, and why it sometimes agrees with the next move and sometimes is against it? The major explanation here first, stands in consensus forecast number of this data and second – how much different from that number market already has priced in right at the moment of actual number release. Additional important question is how popular is the current consensus forecast number.