Forex News Trading: The latest marketing wizardry in the forex market...

The more subtle marketing wizards package it very scientifically. They use impressive looking historical statistics to show how price action unfolded immediately after certain economic releases. See the pattern, they trumpet, and make money from it.

The less subtle approach explains how beat the gun with proprietary data feeds on supposedly important data releases. In reality, most of these data releases have never had any significant impact the forex market before, but despite this, the marketing wizards invite you to join them in the shoot-out by paying a monthly subscription in the belief that this will help you beat the market makers.
Before I go any further in showing you how to really lose your money, your mind and your interest in this lucrative market, me just tell you why I think you can pay attention to what I have to say on the topic. Apart from the fact that I describe in my book, Bird Watching in Lion Country – Retail Forex Trading Explained (BWILC), the absolute necessity of real-time analysis and the folly of basing a trading strategy for the long-term on very short-term technical analysis indicators - or other illusionary patterns - I also explain a term which I coined: “relational analysis”. This simply means that, if you are trading forex, you have to relate three things all the time: price, time and events.
News trading as a concept mainly to do with “events” and specifically with those anticipated events that cause prices to move more than usual, but only briefly - brief even in terms of trading. News trading as offered by the marketing wizards takes this concept and then distorts it to rob you of your money.
Non-farm payrolls: March 1998
My mentor is an institutional bond trader who has a simple view on technical analysis: “if the prices are high, it may be time to sell and if the prices are low it may be a time to buy”. (He amusingly referred to traders’ screens filled with every conceivable squiggle, line and indicator as Playboys – dirty pictures.)
The point he was making is that trading decisions were not made based on technical analysis other than for the basic positioning it could give you as regards where the price is now, relative to where it has been recently. If you are closely monitoring the market you will have a feel for this anyway, but charts are helpful for a quick snapshot picture.
Noting and being acutely aware of upcoming economic data releases was one of the main elements of his analysis approach to understanding the market and price action. This is what he based his decisions on. At the time I started trading in 1998 I was only vaguely aware of things like CPI, PPI, trade balance, money supply, and unemployment – all the things that give economists and analysts that warm and fuzzy feeling – but I quickly acquired an interest, figured out what each of them meant and started using the Sunday papers’ business section to monitor releases and follow the comments.
At this stage I was trading bonds margin here in South Africa.
I had no live real-time price feed, nor a charting service. After a few months I got a pager-based informational price feed which was about as real-time as you could get. In addition to price changes it also informed me of economic data releases. If you saw a price change occour that made you to want to trade, you used the phone to call the broker - who wasn’t in the primary business of fielding these sorts of calls - and so, if you were lucky you through to someone who was willing to help, and that help usually took the form of discussing how stupid your anticipated trade was.
My dumbest trading idea ever
Now, you have to understand, there is a psychological element to all of this. Big price moves are exciting – and they traders. If you could figure out how the prices would react to the data releases you might just have it made, I thought. But my mentor explained to me why this was about my dumbest idea. Of course I knew everything, and disagreed. “Look”, I said “Here are all the examples, I have this cracked.” But I didn’t. And he explained to me why. Let me first give you some background.

One of the things that I realized when looking into the phenomenon of News Trading (2006 retail FX version) was that it was brand new in the forex market (you’ll see how new below.) I have been watching economic data and its effect on short-term forex pricing since I started in forex in 2000/1. I did this because this is the genetic code of the forex market. Very early on I bought a book by Brian Kettell, “What drives the Currency Markets”? This book contains a dedicated chapter on the phenomenon of expected economic data releases and the academic research on their impact on the US dollar, in the short term and also in the longer run. With the right perspective of the market data releases make sense, as do price action around these data releases. (I am not talking about the on-the-release spikes.)
When I decided to write this newsletter, something prompted me to go to my 1999 diary in which I did some initial, and to me, important research on price behaviour and relating different markets’ influences on the market I was involved in (the South African government bond market). And then I almost fell on my back. What did I see?
On Friday 5 March 1999 at 15:30 local time I wrote:
“US Employment as expected. 14.16% à 14.11% !!!!”
I was referring to the non-farm payrolls report. My note indicated that it had come out as expected and my exclamation marks indicated that it had triggered a relatively big price move on the South African bond market.
Consciously or unconsciously, relating price, event and time has been a part of my trading from the very beginning and constant feature of my analysis. It has become the genetic code 4 X 1 strategy and relational analysis. I watched the effect of the non-farm payrolls for probably 5 to 6 years before many so-called forex gurus caught on. In fact, many of them mechanically recited the mantra “don’t trade on a Friday, play golf” until quite recently.
If repetition is the mother of all learning, my news watching experience may have been what I said to clients in my Daily Briefing (GMT 06:00) on non-farm payrolls (GMT 12:30) October 6, 2006:

You can also rest assured that the new bread of news traders will have an increasing tussle with clearinghouses - a fight the news traders will lose and due to the historical that the jobs report is the big one, the day that April / May 2003/4 - can't exactly remember which one - will be repeated and the blood will be flowing is nearing. Someone going to get sick of it and run the market and shake out every trade straddle and news trader trick in a million mile radius ...