Forex Signal (Tuesday October 18, 2011 NY TIME 4:30am EDT) – UK CPI

[PipDog]

My take is that there really is no set formula for determining things like that, as it's more getting a "feel" for what's happening in the markets. What's the market sentiment? Is there overriding pessimism or optimism occurring? If you can answer that accurately, then trading gets a lot easier, as you simply look for entries in line with that sentiment.

Watching the stock indices is one way to get this sense of the markets, but in my opinion you also need to be reading some news as well. You might try having Forex Live up while you trade: Forex News by Forex Live Read through just the headlines to get a sense of what's up. You can also use Talking Forex for a live audio feed: Talking Forex - First for FX News

As has been mentioned, determining aversion or appetite is probably as much art as science. However, re. your question, I usually look at % gain/loss in the indices rather than points. How much constitutes risk aversion/appetite? Again, no set answer for that, but obviously a 2% move in the index for example is more significant than a 0.50% move, etc. Anything beyond a 0.50% move I'd consider at least somewhat significant. These days it's nothing to have indices move 2-3% in a day.

You might consider just sticking a moving average on your indices charts to get a sense of trend also. I like to use a 50 EMA.

Personally though, if I don't have a good sense of what the sentiment is, I either trade conservatively, or I stay out altogether. So for me, a truly flat market is a time to stay out. But possibly Pip Dog might have some other comments about flat markets.

When risk aversion/fear is gripping the markets for example, it's pretty darn obvious. So I prefer to trade when the scenario is fairly clear one way or the other. If I really have no clue, I'd rather just stand aside until it is clear.

I don't know if I can tell you what constitutes a "Flat Market"...which really never is truly the case...more of a relative term. But, when I am setting up for a EUR news trade, for instance, I will not take a long EURUSD position if the EURUSD is down a 100 pips in the last hour due to stocks being down. And, if I recall the night of the UK CPI, the previous US stock session was down, Asia down, the Euro markets were down, and US futures were down. In this case, there is simply no way I'd be buying GU, EU, AU...which is the same as shorting the USD. Instead, I'm looking to either sell (spike) on a bad news report, or, as in this case, wait for a good report, and get ready to sell after the GU spikes up. It's a fairly good bet, as long as stocks don't reverse, that the GU would fall...sometimes quickly, sometimes over the next several hours. In the case of the UK CPI, it has a consistent track record of reversing the spike anyhow...which makes the "sell the spike up" strategy even more attractive.

But, in general, I like to see any of the FX pairs that I am setting up on for a spike news trade, to be fairly flat...quiet...low volatility...essentially waiting to react to the news.

 

[PipDog]

Here's a good example of what my strategy will entail for tonight's UK Retail Sales:

The US stock markets mostly held their own today, at least until late, at which time they all closed with some down momentum. The DJIA closed off .6%, the SP off 1.3%, the Nasdaq off 2% (mostly due to bad Apple earnings). As of now, the Nikkei is off .6%. This is shaping up to be 'Risk Aversion in Play'. But, I will look at the Hang Seng, the Euro markets, and the US futures about 20 minutes before the UK trade before I make my final call.

If the Hang Seng is off 1+%, the Euro markets are off like 1%, and US futures...which as of right now are slightly up...have also turned down, then there will be no way I'm taking a long GBPUSD position. I will set up for a sell on the spike if the news if negative. If the news is positive...then I'll watch the GBPUSD for an hour, assuming a nice 50+ pip up spike, then look for a drop to start, and go short...and ride the GU down with the stock markets to perhaps a 100 pip gain.

Sounds easy, huh?

 

[Boko Maru]

Here's a good example of what my strategy will entail for tonight's UK Retail Sales:

The US stock markets mostly held their own today, at least until late, at which time they all closed with some down momentum. The DJIA closed off .6%, the SP off 1.3%, the Nasdaq off 2% (mostly due to bad Apple earnings). As of now, the Nikkei is off .6%. This is shaping up to be 'Risk Aversion in Play'. But, I will look at the Hang Seng, the Euro markets, and the US futures about 20 minutes before the UK trade before I make my final call.

If the Hang Seng is off 1+%, the Euro markets are off like 1%, and US futures...which as of right now are slightly up...have also turned down, then there will be no way I'm taking a long GBPUSD position. I will set up for a sell on the spike if the news if negative. If the news is positive...then I'll watch the GBPUSD for an hour, assuming a nice 50+ pip up spike, then look for a drop to start, and go short...and ride the GU down with the stock markets to perhaps a 100 pip gain.

Sounds easy, huh?

Great stuff! Thanks Pip Dog. I like how you are planning your news trade along the lines of how you are seeing aversion/appetite. I've been trading news for a few years now, but I tend to focus too much on the deviation needed rather than market sentiment at the time of the news.

Appreciate you sharing here...excellent!

 

[shinodaz]

No doubt. Good stuffs!

 

[PipDog]

UK Retail Sales Coming Up

Here's a good example of what my strategy will entail for tonight's UK Retail Sales:

The US stock markets mostly held their own today, at least until late, at which time they all closed with some down momentum. The DJIA closed off .6%, the SP off 1.3%, the Nasdaq off 2% (mostly due to bad Apple earnings). As of now, the Nikkei is off .6%. This is shaping up to be 'Risk Aversion in Play'. But, I will look at the Hang Seng, the Euro markets, and the US futures about 20 minutes before the UK trade before I make my final call.

If the Hang Seng is off 1+%, the Euro markets are off like 1%, and US futures...which as of right now are slightly up...have also turned down, then there will be no way I'm taking a long GBPUSD position. I will set up for a sell on the spike if the news if negative. If the news is positive...then I'll watch the GBPUSD for an hour, assuming a nice 50+ pip up spike, then look for a drop to start, and go short...and ride the GU down with the stock markets to perhaps a 100 pip gain.

Sounds easy, huh?

As I'm getting ready to go to bed, thought I'd take a look at this setup one more time...when I get up about 25 minutes prior to the UK Retail Sales, I will not have sufficient time to post. Here's what I'm seeing:

Nikkei down 1.1%, Hang Seng down 1.9%, US futures have turned red by a little. I'm seeing a Risk Aversion enviroment shaping up for this trade. I will of course check again before the trade...this may change.

Stavro is suggesting a +.3% trigger to buy, -.5% trigger to sell. I will not be buying if RA is in play. +.3% is way too tight anyhow, but, I'm concerned that if you buy at this level...you are setup to lose. The -.5% is rather conservative to sell. I'll be setting up on -.4% on smaller amount...bigger amount at -.8%. If it is a good number...like +.5%, I will look for an opportunity to sell when the spike peters out and maybe sell some more when the GU starts down.

Don't go crazy and don't panic. Have your plan mapped out in your head before the trade and stick with it. Good Luck!

 

[Boko Maru]

I set up my trade very similar to what you describe above; tightened up my sell triggers and widened out my buy triggers (I was still willing to buy if triggers were hit, but they were not).

Seemed to be obvious risk aversion in markets globally, so I sold into the up spike at 1.5735, although if I hadn't hesitated I could have easily gotten 1.5745. Got out a few minutes later with 21 pips profit on the sell.

You definitely called it correctly re. if there's risk aversion, as the positive number was promptly rejected to the upside; great opportunity to sell into it and make some money. Who knows where it will go from here, but certainly a good opportunity in the few minutes after the news.

Thanks again Pip for sharing your insights...

 

[digamer]

My first proper sentiment-based trade and not just blind deviations. Thank you PipDog and Boko Maru!
This kind of pre-news analysis combined with respective deviation considerations would really improve the FPA signals, in my opinion.

Stavro, kind request...would this be possible?

 

[PipDog]

I set up my trade very similar to what you describe above; tightened up my sell triggers and widened out my buy triggers (I was still willing to buy if triggers were hit, but they were not).

Seemed to be obvious risk aversion in markets globally, so I sold into the up spike at 1.5735, although if I hadn't hesitated I could have easily gotten 1.5745. Got out a few minutes later with 21 pips profit on the sell.

You definitely called it correctly re. if there's risk aversion, as the positive number was promptly rejected to the upside; great opportunity to sell into it and make some money. Who knows where it will go from here, but certainly a good opportunity in the few minutes after the news.

Thanks again Pip for sharing your insights...

Good job, Boko! I got a little greedy and averaged +6 pips. It appears that since then, the Euro markets have started to reverse up, and, the US futures are up. The GU (and the EU, AU) is up.

It looks like a long would of worked off the bottom...the GU started up about 45 minutes post news. I'd say that move up was more about stocks and perhaps support points on the graph...and less about the Retail Sales.

A good crystal ball would be handy....

 

[Rob852]

worldfxsignal

I found this worldfxsignal.com, are they any good?