A news feed may indicate a change in the unemployment rate. For the sake of the scenario, unemployment rates will show a positive change. Historical analysis may show that the change is not due to branding is fine seasonal effects. News feeds show that buyer confidence is increasing due the decrease in unemployment rates. Reports provide a strong indication that the unemployment rate will remain low.
With this information, analysis may indicate that traders should short the USD. The algorithm may determine that the USD/JPY pair would yield the most profits. An automatic trade would be executed when the target is reached, and the trade will be on auto-pilot until completion.
The dollar could continue to fall despite reports of unemployment improvement provided from the news feed. Investors must keep in mind that multiple factors affect the movement of the United States Dollar. The unemployment rate may drop, but the overall economy may not improve. If larger investors do not change their perception of the dollar, then the dollar may continue to fall.
The big players will typically make their decisions prior to most of the retail or smaller traders. Big player decisions may affect the market in an unexpected way. If the decision is made on only information from the unemployment, the assumption will be incorrect. Non-directional bias assumes that any major news about a country will create a trading opportunity. Directional-bias trading accounts for all possible economic indicators including responses from major market players.
Trading The News – The Bottom Line
News moves the markets and if you trade the news, you can capitalize. There are very few of us that can argue against that fact. There is no doubt that the trader receiving news data ahead of the curve has the edge on getting a solid short-term trade on momentum trade in various markets whether FX, Equities or Futures. The cost of low latency infrastructure has dropped over the past few years making it possible to subscribe to a low latency news feed and receive the data from the source giving a tremendous edge over traders watching television, the Internet, radio or standard news feeds. In a market driven by large banks and hedge funds, low latency news feeds certainly give the big company edge to even individual traders.
Jubin Pejman, Founder of FCM360, is an industry leader for Financial Services Technology Facilitation. FCM360 specializes in establishing high-performance IT infrastructures for Financial companies to gain connectivity to mission-critical exchange markets. Learn more about FCM360’s low latency colocation services.