News comes from journalists who could be reporting from a biased source: a “Smart Money” manipulative liar or an analyst who is trying to get the public involved in a scheme to manipulate a market. Even taking a contrarian view doesn’t help because we don’t know exactly what the plan is or the timeframe. They could be trying to get a push going to add to their market or simply setting-up the Herd for a quick fleecing.
Market information on futures contracts is public and available through regularly scheduled company releases and government reports. Economic reports are issued by the government and, unlike company announcements, are not dependent on boardroom meetings, management turnover, insider information, officer incentives, and personal or corporate agendas.
Economic Announcements can have a huge impact on the market; therefore, knowing how to interpret and analyze them is important for all investors. Some of the most important economic indicators include: the Beige Book, Consumer Confidence Index (CCI), Gross Domestic Product (GDP), Housing Starts, Jobless Claims Report, Non-Farm Payroll, etc.
“Market Makers base their bids and offers on information you are not privileged to see. They know of big blocks of buy or sell orders on their books at particular levels and the general flow of the market. These wholesalers of stocks also trade their own accounts. It would be na.ive to think they are not capable of temporarily marking the market up or down as the opportunity presents itself, trading in the futures or options markets at the same time. They can easily mark the market up or down on good or bad news, or any other pretence. They are not under the severe trading pressure this has put on all other traders, because they are in tune with real picture and in most part it is they that are doing all the manipulating. This is good news for us because we can see them doing this in most cases fairly clearly and can catch a good trade if we are paying attention. Why play around with the prices? They want to trap as many traders as possible into poor positions. As an extra bonus for them this also includes catching stop loss orders.”
Listen to the News by All Means But…
Always say to yourself “BUT ” Is the professional element going to mark the market either up or down on this news, to better their own trading position? Is the market basically strong or weak? If the market looks strong, is this apparent bad news giving you a chance to buy? What is the volume telling you? Low volume for example on a down day indicates ‘no selling’. High volume on a down day with the next day level or up; indicates ‘buying’. [note both on a down day]. News can never change the trend of a market. What is the background history? News can never change the foundations that any particular move is based on. If the market has already seen substantial falls, is this bad news going to finally shake the weak holders out of the market allowing a market turn and giving a good buying point?
You will always see the specialist and market makers playing around with the prices on news. This is acceptable as long as you are expecting them to do this, and not surprised or taken in when it happens. (Tom Williams)
When approaching a major announcement, the risks jump up. First, is the news going to be interpreted as good or bad? Then, you have to be fully prepared and in early because the announcement will probably create such a wide spread it isn’t worth the slippage, and move so fast your platform won’t be able to get you in at a good price afterwards no matter how fast your trigger finger is. So, back to basics:
Williams’ Principle One
The herd will panic after substantial falls and start to sell usually on bad news. Then ask yourself:
Are the trading syndicates and market makers prepared to absorb the panic selling at
these price levels? (must be on a down bar). If they are, then this is a strong sign of
Williams’ Principle Two
The herd will at some time after substantial rises as seen in a bull market become annoyed at missing out on the up-move and will rush in and buy, usually on ‘good news’. This includes traders that already have long positions, and want more. Then ask yourself:
Are the trading syndicates and market makers selling into this buying? (must be a up-bar) If so, then this is a strong sign of weakness.
Know where the market is as to Strength and Weakness in relation to Supply and Demand.
Effort without Result
A major sign of weakness is Effort without Result. There is an effort to go up (UpBar on the Chart below) which fails – check the volume, and is confirmed on the very next bar (DownBar). After the results on these two bars, “Smart Money” gets out – Volume dips. The up move is over.
What does this mean? Probably no news event will be able to push this market up during these time periods. But “Smart Money” has a campaign that is longer term. From the previous manoeuvers, what would the herd be thinking?
The investment “Smart Money” makes to get what they want is too high to allow much risk of failure. They are not in this to supplement their income. They are in it to brag about how much they will make this year or to buy a new yacht next year.
Bottom line: don’t base a trade on the news or a coming announcement, read the chart and understand the campaign “Smart Money” is running. If it’s going to be big, then look for the trigger be timed with a news flash or economic announcement. If you understand the cause that is developing, you will know what the effect will be when “Smart Money” pulls the trigger.
How to analyze Economic Announcements
If you look at a data calendar (see here for a calendar and here for my essay) you can find out when certain data are released…The Employment Report essay (here) explains how the Bureau of Labor Statistics calculates the numbers that are included in the report; in this essay, we explore the announcement process, that is how analysts forecast the data, how the consensus forecast is obtained, what are “whisper” numbers, the lock-up and what happens at 8:30 am on the first Friday of the month. For the purposes of this essay I will use the monthly announcement of the Employment Report but the same analysis could be applied to other announcements…
At 8:30 am the data are released and broadcast on the news wires and television; but before then there are approximately 20 journalists who have seen the data and written reports at the “lock-up” (see here for an excellent essay describing the lock-up). Accredited journalists from major news organizations receive the data release a half-hour early and prepare their articles that can be released at exactly 8:30 (they are “locked up” in a room where they are not allowed to contact the outside world before the official release). The data are usually available to senior government officials the night before the release so that the appropriate cabinet secretary can be prepared to speak just after the release.
Then at 8:30 the data are released to the public; typically the data are announced on television (CNBC and elsewhere), via paid data services to their clients, on news wires and on the web sites of the agencies that release the data. Traders often react to the initial announcements and analysis by the reporters in the lock-up before; later analysts will release comments on what the data really mean through to their traders, through wire services and in letters to clients (a service performed by the author of this article). But an hour later there is another announcement and a month later a revision and five years after that a benchmark revision and the data will look very different.
[Read the entire article at: UnderstandingTheMarket.com http://understandingthemarket.com/?p=47]
Sometimes, it’s pretty simple to scalp a news event in Forex. On the release, the pair will spike one way or the other – it doesn’t matter if the news is good or bad – then drop back before it trails off into the actual reaction. Just wait for the spike to back off then jump in for the ride the other way. Sometimes, if you are fully prepared, you can see the setup coming and catch both sides of the spike.
and hence trend reversals come as a surprise to them, as the past performance doesn’t guarantee the future. The trend reversal during intra-day and for the long term is a major component to be understood well to be a successful trader.
The traders at any given buy or sell level, will view the same level differently depending on the news or sentiment.The market makers/facilitators/operators use different strategies, news and rumors, political developments etc to their advantage to bring in swings within the market. They create a bullish mood to sell and bearish mood to buy. They never do hat-tricks. The shift in trading zone causes confusion and comes as a surprise to the trader who fails to act “Smart Money”artly and as a result misunderstands the direction of the market.Keep in mind that the operators create the market sentiments and act against the traders from time to time.
Understanding the intention of the operator from time to time and trade accordingly will give promising results. But how do we understand when they bring in changes in levels faster than we think?