The Difference Between Reaction and Response is Worth Hundreds of Pips

Boris Schlossberg

It’s been an intoxicating week at BK. We’ve been winning on every trade structure – swing, news trading, day trading and even algo. A big part of the reason is simply the much more accommodative market environment. Nothing like pick up in volatility to make your continuation trades hit all their profit targets.

But it’s something more. The ability to win on both the news level and the swing level made me realize that I am starting to master a very distinct set of skills, that are really useful in understanding how markets really operate.

One common refrain that I often hear from retail traders is, “I never pay attention to the news. It can’t help your trades anyway.” Although I refrain from saying this to their face, my immediate thought is that the only thing stupider than that statement are traders who tell me, “I never pay attention to technicals, they are just squiggles on a screen.”

Both attitudes are woefully myopic because trading is always and forever a mixture of fundamental catalysts, market positioning (trend) and price levels. It is a multi-factor game and just looking at “squiggles on a screen” or chasing the latest headline is a sure path to ruin in trading because you are flying partially blind.

Still, because retail traders are predominantly technically oriented and pay only cursory attention to fundamentals it’s really important to understand the difference between news reaction and news response.

One of the reasons that so many retail traders are frustrated by news trading is that it seems to follow Murphy’s rule of law. Good news gets sold and bad news gets bought. Nowhere is this more evident than in commodity dollars where a few primary bank dealers control the order flow and enjoy nothing more than wrong footing traders who chase headlines.

Let’s understand what happens when FX news comes out. The moment the headlines hit the wires algos from HFT firms like Citadel and Virtu will sweep all the offers or hit any bids in a matter of microseconds. So often the move between pre-news and post news highs or lows is accomplished within a 1-minute candle leaving absolutely nothing for the point and click retail chasers who are fighting latency and wide spreads. Furthermore, the dealers who are on the opposite side of this flow have now inventoried a lot of one-way trades and need to carefully unload their position at a profit.

Contrary to the paranoia you’ve heard in retail chat rooms, dealers are not “always manipulating the market”. They are just doing their job as liquidity providers while trying to keep a positive P/L. So naturally, prices will often rise after an initial sharp drop or fall after a spike higher. That’s how the game is played, so don’t hate the player.

This is simply news reaction and in BK Live Trading I often take advantage of that dynamic by doing the exact opposite of what makes common sense and capture the “retrace profit” along with the dealers.

But news reaction is frankly chump change. The real money in FX trades is made on news response when a piece of data has far-reaching implications that go beyond the next few hours or even the next few days. A prime example of this dynamic at play was the RBNZ presser in March. The New Zealand central bank announced a clear shift to an accommodative stance, essentially warning the market that a rate cut was coming. The price instantly dropped but then actually consolidated and rallied for a few days after.

N00b traders would be forgiven for thinking that this was the end of the story, but for traders who actually understood news response this was just the beginning. That’s because the markets players who truly move prices – the corporates, the hedge funds, the asset managers and the pension fund managers were making multi-month long adjustments to their positions that would inevitably have a directional impact on price. Sure enough a few weeks later the kiwi was substantially lower than post RBNZ and those traders who had the foresight and the patience to stay with the trade capitalized on the move.

I often say that day trading is for dopamine. We all want it. We all need it. But just like junk food it’s not really a recipe for long term success. Dollars are made on the Daily. It’s boring. It’s tedious. It’s certainly not sexy, but it’s where the real money in FX is made.

RBNZ.Example

Today’s Trades 01.24.2018 – NZDCAD +33 pips already banked

Swing

*Good morning/afternoon everyone!*

The U.S. dollar is trading sharply lower against all of the major currencies today with this new leg down breaking support and resistance levels for many major currencies. USD/JPY is below 110 for the first time since September on U.S. trade war worries and U.S. bond selling as Treasury yields are up sharply today.
Euro and Sterling are very strong with EUR/USD hitting a high of 1.2350 following better than expected PMIs. Sterling is taking out as many stops as it can on the move upwards thanks to stronger than expected wage growth. The commodity currencies are also performing very well with the Australian dollar leading the gains. Its hard to say whether these strong moves will continue in the NY session because of the significant extensions but momentum is certainly on their side. This morning’s US existing home sales report generally does not have a significant impact on the greenback but with no major U.S. data this week and investors sensitive to any positive or negative dollar news, it could lead to a short-lived spike in volatility.

*The MAIN THEMES I see today are*

-USD
+GBP
+CAD

*Trading Biases*

-USD
+GBP, +CAD,
mildly +AUD, +NZD
neutral EUR, JPY, CHF

*Today’s Initial Trades*

1. Sell NZDCAD at .9129, Stop at .9156, Target .9100

Close ALL open day trades by 10:20AM NY / 15:20 GMT

Making Pips is not Like Making Donuts

Boris Schlossberg

Trading is a very tough challenge because the relationship between effort and success is almost non-existent. You can do almost everything right and lose or you can do everything wrong and win. While luck plays a role in almost all human endeavors ( you just need to see last week’s American football matches to see how a random bounce made all the difference) in trading the variance is far greater than in any other field.

There is absolutely no way, for example, that a pudgy 5 foot 6 teenager with coke bottle glasses could walk on a professional football field (be it American football or soccer ) and score. Yet in trading, that very same novice who knows nothing about finance or markets could easily beat the pros, at least for a little while.

Part of the reason why this is possible is simply the unpredictable nature of news. At any given time newflow can flip price action completely around. This does not happen in the real world where 99.9% of the newsflow has no impact on price whatsoever. Imagine if your donut businesses were affected by every new Trump tweet, and you get the idea of why trading is very different from making donuts.

Precisely because trading is so arbitrary you need to create a system of control that is ironclad. We can’t control price, but here are some of the things that we can control and should.

  1. Control size. Of all things that get traders in trouble, size is the biggest problem. Trading 0.01 lots for as long you need is still the best trading advice there is. Trading 1X equity max is a close second.
  2. Control entry. We can control exits, but we can always control entries by either letting price come to us or waiting til price touches a key point of momentum.
  3. Control how we exit. We can’t know where the market will take us, but we can control the trade once it’s in the money by using a dynamic stop. This a terrible method mathematically, but the best method physiologically and since trading is as much about keeping your psyche sound as it is about keeping your account positive controlling how you exit is the only way to control yourself.
  4. Control your approach. What makes you trade better – defined strategy or discretionary trading? Discover your inner truth and you will be much more successful at controlling the game.

Day Trading Signals May 5 – Daily Tally +15 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  5/04

BK Trading Room Results

EUR/USD +15 

   

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

Date Currency
Event
GMT Strategy
May 5 – Tue AUDUSD RBA 4:30 C-Trade
May 5 -Tue AUD/USD RBA 4:30 C-Frighter

 

  

Last 24 hours Results
Crowd Fighter 
No Trade
 

 
C-Trade
No Trade

 

  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (May 5, 2015) – Good Luck Trading!

1. Australian PMI Services (7:30PM ET) Bullish AUD — Potential upside surprise given rise in PMI manufacturing

2. RBA Rate Decision (12:30M ET) No Trade — Rate decisions are difficult to predict. Will be a volatile one

3. EZ PPI (5AM ET) No Trade — No change in German PPI

4. Canadian Trade Balance (8:30AM ET) Bearish CAD — Potential downside surprise given drop in IVEY PMI in March

5. US Trade Balance (8:30AM ET) No Trade — Hard to predict because no change in ISM manufacturing

6. US ISM Non-Manufacturing (10AM ET) No Trade — Hard to predict because no change in ISM manufacturing 

Day Trading Signals May 1 – Daily Tally +75 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/30

BK Trading Room Results

EUR/USD +15

EUR/JPY+15 

AUD/CAD +15

AUD/USD +10

NZD/JPY +10

AUD/JPY +10

   

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

Date Currency
Event
GMT Strategy

 

  

Last 24 hours Results
Crowd Fighter 
No Trade
 

 
C-Trade
No Trade

 

  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (May 1, 2015) – Good Luck Trading!

1. Chinese PMI Manufacturing (9PM ET) No Trade — Chinese data is difficult to predict

2. AU Producer Prices (9:30PM ET) Bullish AUD — Potential upside surprise given rise in Australian consumer prices

3. UK PMI Manufacturing (4:30AM ET) Bullish GBP — Potential upside surprise given small increase in CBI Total Trends index and rise in house prices

4. US ISM Manufacturing Index (10AM ET) Bullish USD — Potential upside surprise given rise in Chicago PMI and Philly Fed index 

Day Trading Signals April 30 – Daily Tally +25 pips

News

BK NEWS TRADES with our Economic Data Projections   

 

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/23

BK Trading Room Results

NZD/CAD +10

 EUR/JPY+15 

   

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

Date Currency
Event
GMT Strategy

 

  

Last 24 hours Results
Crowd Fighter 
EURJPY -17
 

 
C-Trade
USD/JPY -15

 

  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (April 30, 2015) – Good Luck Trading!

1. BoJ Rate Decision (12AM ET) No Trade — No changes are expected and we do not trade rate decisions

2. German Retail Sales & Unemployment (2AM & 3:55AM ET) No Trade — Difficult to predict given marginal rise in confidence and little change in rate of job creation

3. CAD GDP (8:30AM ET) Bullish CAD — Potential upside surprise given increase in retail sales and trade balance

4. US Personal Income and Spending (8AM ET) Bullish USD — Potential upside surprise given rise in average hourly earnings and retail sales

5. US Chicago PMI (9:45AM ET) No Trade — Difficult to predict because rise in Philly offset by drop in Empire State manufacturing surveys 

Day Trading Signals April 28 – Weekly Tally +40 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/20-4/24

BK Trading Room Results

4/23

NZD/JPY +10

4/22

EUR/USD +10

AUD/USD +10

4/21

NZD/JPY +10

4/20

EUR/JPY +10

   

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

Date Currency
Event
GMT Strategy
Apr 28- Tu GBP/USD UK GDP 8:30 C- Trade
Apr 28 – Tu GBP/USD UK GDP 8:30 C-Fighter

 

  

Last 24 hours Results
Crowd Fighter 
No Trades
 

 
C-Trade
No Trade
 
  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (April 28, 2015) – Good Luck Trading!

1. UK GDP (4:30AM ET) Bearish GBP — Potential downside surprise given drop in retail sales and trade balance in first quarter

2. US S&P CaseShiller House Prices (9AM ET) No Trade — Hard to call given rise in average price of existing home sales and drop in new home sales

3. US Consumer Confidence (10AM ET) Bullish USD — Potential upside surprise given rise in the IBD/TIPP and University of Michigan Consumer Sentiment indices 

Day Trading Signals April 27 – Weekly Tally +40 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/20-4/24

BK Trading Room Results

4/23

NZD/JPY +10

4/22

EUR/USD +10

AUD/USD +10

4/21

NZD/JPY +10

4/20

EUR/JPY +10

   

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

Date Currency
Event
GMT Strategy

 

  

Last 24 hours Results
Crowd Fighter 
No Trades
 

 
C-Trade
No Trade
 
  

CALENDAR CALLS

Here’s what we are looking for in Monday’s economic reports (April 27, 2015) – Good Luck Trading!

1. US Markit Composite and Service PMIs (9:45AM ET) No Trade — US Markit PMIs are difficult to handicap but is becoming increasingly market moving for dollar 

Day Trading Signals April 23 – Daily Tally +10 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/23

BK Trading Room Results

NZD/JPY +10

   

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

Date Currency
Event
GMT Strategy
Apr 25- Fr EUR/USD IFO 8:00 GMT C-Trade
Apr 25- Fr EUR/JPY IFO 8:00 GMT C-Fighter

 

  

Last 24 hours Results
Crowd Fighter 
EURJPY -17
 

 
C-Trade
AUD/USD -15
GBP/USD -15
EURUSD +10

 

  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (April 24, 2015) – Good Luck Trading!

1. German IFO (4AM ET) Bearish EUR — Potential downside surprise given weaker ZEW expectations and German PMIs

2. US Durable Goods (8:30AM ET) No Trade –– Durable goods orders can be volatile and difficult to predict. Impact on the dollar should also be limited. 

Day Trading Signals April 23 – Daily Tally +20 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/22

BK Trading Room Results

EUR/USD +10

AUD/USD +10

   

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

Date Currency
Event
GMT Strategy
Apr 23 -We AUDUSD HSBC Flash PMI 1:45 GMT C-Trade
Apr 23 -We AUDUSD HSBC Flash PMI 1:45 GMT C-Fighter
Apr 23- We EUR/USD EZ Flash PMI 8:00 GMT C-Trade
Apr 23- We EUR/JPY EZ Flash PMI 8:00 GMT C-Fighter
Apr 23- We GBP/USD UK Retail Sales 8:30 GMT C-Trade
Apr 23 We GBP/USD UK Retail Sales 8:30 GMT C-Fighter

 

  

Last 24 hours Results
Crowd Fighter 
AUDUSD 12
 

 
C-Trade
AUD/USD 10

 

  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (April 23, 2015) – Good Luck Trading!

1. HSBC Chinese Flash PMI (9:45PM ET) No Trade — Chinese data is difficult to predict but can be very market moving

2. German and Eurozone PMI (3:30AM ET) Bullish EUR — Potential upside surprise given rise in industrial production, jump in current conditions of ZEW and general stimulus provided by a weak euro

3. UK Retail Sales (4:30AM ET) Bullish GBP -Potential upside surprise given rise in BRC retail sales.

4. US New Home Sales (10AM ET) Bullish USD -Potential upside surprise given rise in existing home sales 

Day Trading Signals April 14 – BK Trade Room Tally +80 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/07=4/13 +80

BK Trading Room Results

 

4/13

EUR/USD+10

NZDJPY+10

USD/USD+10

AUD/CAD+10

NZDCAD+10

NZD/USD+10

AUD/USD+10

AUD/JPY+10

 

 

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

  

   

  

Date Currency
Event
GMT Strategy
Apr 14-Tue USD/JPY US Retail Sales 12:30 C-Trade
Apr 14-Tue EUR/JPY US Retail Sales 12:30 C-Fighter

 

  

Last 24 hours Results
Crowd Fighter 
No Trade
 

 
C-Trade
No Trade 

 

  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (April 14, 2015) – Good Luck Trading!

1. UK CPI (4:30AM ET) Bearish GBP — Potential downside surprise given strength of sterling and larger decline in BRC shop prices

2. Eurozone Industrial Production (5AM ET) Bullish EUR — Potential upside surprise given rise in German IP

3. US Retail Sales (8:30AM ET) Bullish USD — Potential upside surprise given pickup in spending reported by the International Council of Shopping Centers and Johnson Redbook 

Day Trading Signals April 10 – BK Trade Room Tally +5 pips

News

BK NEWS TRADES with our Economic Data Projections   

Videos on How to Trade our 3 BK News Strategies 

How To Trade AJAX

How To Trade Crowd Fighter

How To Trade C – Trade 

BK Day Trading Chat Room Results  4/09 +5

BK Trading Room Results

NZDCAD+5

 

 

Want to join our chat room (its included in your subscription)?

Just Email [email protected] with subject line “Slack”

   

****NOTE we are going to trade C-Trade and Crowdfighter on 15 Minute rather than 5 minute delay on all pairs today***

  

  

   

  

Date Currency
Event
GMT Strategy
Apr -10 USD/CAD CAD Employment 12:30 C-Trade
Apr-10 USD/CAD CAD Employment 12:30 C-Fighter

 

  

Last 24 hours Results
Crowd Fighter 
No Trade
 

 
C-Trade
No Trade

 

  

CALENDAR CALLS

Here’s what we are looking for in tomorrow’s economic reports (April 10, 2015) – Good Luck Trading!

1. UK Industrial Production (4:30AM ET) Bullish GBP — Potential upside surprise given minor increase in manufacturing PMI index. New orders and export orders also increased

2. Canadian Employment (8:30AM ET) Bearish CAD — Potential downside surprise given sharp decline in employment component of IVEY PMI.