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Sparrow

Behavior of AUD or EUR futures today(05 sep)

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Hi guys, I really like your forum and I get a lot of good ideas here.

 

As a newbie trader I still got a lot to learn but I've got a few months of experience under my belt.The last weeks have been terrific for me in the currency futures, contrary to the rest of my 'hobby'.

 

I was wondering if anybody has an idea why the AUD futures behaved so strangely today. Recently any bad news triggered a sell off and bad days on wall street have been a poison for the AUD.

 

So I tried to short the AUD, unfortunately with a very bad entry(as usual).

As soon as the worse than expected news about Pending Home Sales hit the streets AUD v-bottomed:confused: and went against me in spurts, despite a very negative DOW. Volume was higher than average but tapered off right now.

 

The commitment of traders report shows that the big boys were short last week, my guess is that they liquidated their positions and bought into weakness. Same thing happened in the EUR and FOREX.

 

Am I missing something? Any idea how to explain it all?

 

Any help would be appreciated.

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If you're going to trade the AUD I would probabbly keep track of news here. We are in an election year at the moment. We have just had the APEC summit, there is growing tension in the coalition as to whether the Prime Minister should resign ahead of the election cause he's really old, and we have inflation figures to be released pretty soon!

 

Our currency has been incredibly volatile over the last month and a half going from (using an indirect quote) a low of around 76 US cents for our dollar up to a high of 88 US cents for our dollar. Thats a very wide range in such a short time.

 

Keep track of the key economic news announcements when trading the AUD at the moment :)

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The Japanese carry trade is chasing around for the best place to put their money. AUS, NZD, GBP, bouncing from one to the other looking for the least scary place to park their yens where they will earn more than the 0.5% rate in Japan. Bad news on one side of the globe has yen going to the other side of the globe. Bloomberg has finance posts that are worth looking at.

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Thanks for the info Nick. The AUD futures have netted me some pretty sweet profits which are keeping me afloat( a little longer? ).

My impression is that volatility is decreasing at the moment, at least compared to the july/august. It's getting harder to trade, but there could still be a couple of bucks to be made in it.

 

My opinion on the importance of news is changing right now, thanks to material i found here. I'm reading Tom Williams - Master the Markets.

It sounds like a marketing ploy for his software but the advice seems to be pretty good. Maybe you know how to play the news, i just got lucky a couple of times.

 

As an example, you do exactly the same thing in your life. Your daily decisions are based on your

background information and only partly on what is happening today. If you won the lottery last week, yes,

you might be buying a yacht today, but your decision to buy a yacht today will be based on your recent

background history of financial strength appearing in your life last week. The stock market is the same.

Today’s action is heavily influenced by recent background strength or weakness, rather than what is

actually happening today (this is why 'news' does not have a long-term effect). If the market is being

artificially marked up, this will be due to weakness in the background. If prices are being artificially

marked down, it will be due to strength in the background.

 

1. The ‘herd’ will panic after observing substantial falls in a market (usually on bad news) and will

usually follow its instinct to sell. As a trader who is aware of crowd psychology, you must ask

yourself, “Are the trading syndicates and market-makers prepared to absorb the panic selling at these

price levels?†If they are, then this is a good sign that indicates market strength.

2. After substantial rises, the ‘herd’ will become annoyed at missing the up-move, and will rush in and

buy, usually on good news. This includes traders who already have long positions, and want more. At

this stage, you need to ask yourself, “Are the trading syndicates selling into the buying?†If so, then

this is a severe sign of weakness

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I think people underestimate the "herd". The "herd" is always going to be a stronger force than any one professional or even a few professionals put together. If there's panic the professionals can try to stall it if it is in their interests but they can't do that forever. Knowing how to gague the mentality of the "herd" and take a position apporpriately is the holy grail! However we can't cause we're not psychics and we're not experts on group psychology.

 

Yes people will react badly to good news and visa versa. This is about as simple as it gets when it comes to trading off the news. You'll find that most credible economic news reporters often quote the expected figure prior to its release so you can make a game plan before a trade and then gague once the news is released whether the expectation has been met, exceeded, or unrealised.

 

Of course many people will say "I don't care about what the news is, I just care about how the markets react to it" and thats a valid enough oppinion however it can't hurt to have a small game plan based on reliable expectations data. Just always remember never to go in with a pre-conceived idea!

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Professionals do know how to play the emotions of the crowd and even traders who have put in a lot of effort can be struggling at that times.

 

IMHO if you want to play the news, you have to either be well prepared or you're good at making quick decision and can put on a trade within seconds.

 

If you're a long term trader, the news and the market's reaction can tell you a lot about the momentum of the instrument. I've had it with day trading, it doesn't suite me.

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