Sam Seiden
Independent Analyst
So often I get this question: “Should you not trade when big news is coming out”? My answer is always the same. If you don’t know how to identify strong demand and supply in a market by looking at a price chart, don’t risk your hard-earned money in a trade and stay out of the market. However, if you do know what you’re doing, trading around news is great! Like any market, the global financial markets are nothing more than an ongoing supply and demand equation. Trading and investing opportunity is present when this simple and straight forward equation is out of balance.
Let’s now add news to this simple and straight forward equation… News creates perceptions and perceptions create action. In the markets, that leads to one of two things, a buy or a sell decision. So, understand that any and all influences on price are always reflected in price. If you are following me, you can then conclude that news, no matter how strong it is, simply speeds up the price action (movement) that was going to happen anyway based on supply and demand. Let’s look at a recent strong news event, the November 8th election, and watch how price moved in a market we cover on our Supply and Demand grid.
November 8th, 2016 – Election Day – Russel 2000 (TF) Futures – OTA Supply/Demand Grid
November 8th started with most people around the world assuming Hillary had an easy path to victory. As the day and evening went on, voting showed that it was a tight race and things were changing. Later in the evening, Trump’s predictions of a win were becoming more and more clear. Because of this “unexpected outcome”, the global equity index markets began to fall and fall hard, many people were selling. Our supply and demand grid told us this was going to happen as well. Price rallied to supply and then began to collapse as demand was far below.
November 8th, 2016 – Election Day – Russel 2000 (TF) Futures – OTA Supply/Demand Grid
Price declined all the way down to a key demand level we had on our supply and demand grid for the same market. This was also shortly after the election results became final. Price then rocketed off that demand and rallied to new highs as again, there was no supply to stop it. If you were just trading the markets key supply and demand levels November 8th and had no idea there was even an election going on, you would have taken these same trades. News, again, just sped up what was going to happen anyway. You can think back decades to all the major news events and look at your charts and you will see this is the case time and time again.
Our supply and demand grid didn’t know there was an election. It doesn’t care about Hillary or Trump. Our supply and demand grid doesn’t have a brain. It ONLY focuses on where the Banks and financial institutions are buying and selling, where the market’s significant supply and demand is. It doesn’t know news is happening, or care; that’s one of the reasons it performs so well. When risking your hard-earned capital in the markets, focus on what is real, not what you feel.
Hope this was helpful, have a great day.
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Editors’ Picks
EUR/USD struggles for direction amid USD gains
EUR/USD is trimming part of its earlier gains, coming under some mild downside pressure near 1.1730 as the US Dollar edges higher. Markets are still digesting the Fed’s latest rate decision, while also looking ahead to more commentary from Fed officials in the sessions ahead.
GBP/USD drops to daily lows near 1.3360
Disappointing UK data weighed on the Sterling towards the end of the week, triggering a pullback in GBP/USD to fresh daily lows near 1.3360. Looking ahead, the next key event across the Channel is the BoE meeting on December 18.
USD/JPY weakens below 156.00 amid Fed rate cut outlook, BoJ rate hike anticipation
The USD/JPY pair trades on a negative note near 155.75 during the early Asian session on Monday. The US Dollar softens against the Japanese Yen amid the prospect of interest rate cuts by the US Federal Reserve next year.
Editors’ Picks
When are the China Retail Sales, Industrial Production and how could they affect AUD/USD?
The National Bureau of Statistics of China will publish its data for November at 02.00 GMT. AUD/USD trades on a positive note on the day in the lead up to the China Retail Sales, Industrial Production data. The pair gains ground as US Dollar softens amid the prospect of interest rate cuts by the US Federal Reserve next year.
USD/JPY weakens below 156.00 amid Fed rate cut outlook, BoJ rate hike anticipation
The USD/JPY pair trades on a negative note near 155.75 during the early Asian session on Monday. The US Dollar softens against the Japanese Yen amid the prospect of interest rate cuts by the US Federal Reserve next year.
Gold holds steady above $4,300 amid supportive fundamental backdrop
Gold kicks off the new week on a slightly positive note following Friday's late pullback from levels just above mid-$4,300s or the highest since October 21. Bets for two more rate cuts by the US Fed next year continue to act as a tailwind for the non-yielding bullion. Apart from this, a softer risk tone and geopolitical uncertainties benefit the safe-haven precious metal. However, a modest US Dollar uptick might cap gains ahead of the delayed US NFP report on Tuesday.
Week ahead: US NFP and CPI, BoE, ECB and BoJ mark a busy week
After Fed decision, dollar traders lock gaze on NFP and CPI data. Will the BoE deliver a dovish interest rate cut? ECB expected to reiterate “good place” mantra. Will a BoJ rate hike help the yen recover some of its massive losses?
Big week ends with big doubts
The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.
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