Why does good news sometimes cause markets to fall?

When Good News Turns Bad

One of the most difficult things to understand about the markets for the uninitiated, is how good news can cause prices to fall. Or vice versa, why seemingly bad news sometimes causes markets to rise. It appears to make no sense – it’s a paradox.

Last week was a perfect example when great economic data for the United States job market was released showing the lowest unemployment since 2008 pre-Global Financial Crisis times. This is a significant sign that the US economy is improving. Companies thrive in good economic times, more jobs are created and more profits are made so this all sounds like good news right? Yet stocks plummeted on the news. How can that possibly make sense?

Early in my career when I had an interest in the markets, yet little understanding of them, I would catch a pre-market headline such as ABC stock profit rises 10 per cent and think that was great news only to see the stock price fall 5 per cent when it opened. Why did this happen? The answer is that the market expected ABC profit to rise more than the 10 per cent announced.

For arguments sake, let’s say the market expected a profit increase of 20 per cent. This market expectation is always priced into the market price; it’s the classic ‘buy the rumour’ situation. However great a 10 per cent increase in profits might be for ABC, it missed expectations and hence the price will fall to reflect the factual evidence versus the market expectations. Buy the rumour, sell the fact.

It’s actually pretty simple and straightforward, you just need to be fully informed and know both market expectations as well as facts.

Quantitative Easing

The current situation with the global markets is a little more complicated but there is a method to the madness. In recent years the US economy has been in bad shape and just a few years back in 08/09 things got so bad and the markets plummeted so fast that the US Federal Reserve stepped in and starting pumping cash into the markets to stimulate the economy. You have probably heard the term ‘quantitative easing’ or ‘QE’ been bandied about but may not have known what it meant. Well in simple terms that’s what QE is… pumping money into the markets to stimulate the economy. When a central bank’s normal policy is not working effectively (like in 2008) and they want to stimulate their economy, QE is one of the tricks up their sleeve.

The US Federal Reserve has been playing this card since late 2008 and to date they have not stopped. The Fed has continued with QE for one simple reason, the economy was not sufficiently recovered to stop it … until now perhaps?

Coming back to the great jobless figure stats in the US last week and the logic behind stocks falling on the news, here goes…

The US stock markets have risen strongly since early 2009 and one supporting reason for these on-going stock price rises is the Fed pumping money into the markets via their continued QE policy. The Fed is likely to continue QE until they see the economy is sufficiently recovered to look after itself without their assistance. The economic data out recently is undoubtedly showing great signs for the US economy, however it is getting sufficiently good that it is also predicted by the market that the Fed will start to slow their QE sometime soon. The Fed slowing or even stopping QE takes away one of the factors supporting price rises in stocks. Therefore, this good news for the economy is bad for the markets in the short-term as the market now prices in the possibility of reduced QE by the Fed and market participants start selling. So the markets will likely continue to fall in the short term on good news as we have seen already. The long-term however is another story.

Just like the good news for ABC stock rising 10 per cent is probably a good thing in the long-term, it can also be a bad thing in the short-term as the market readjusts prices based on the facts in front of them.

Looking Ahead

In the short-term this situation is likely to cause more volatility. We are in that strange situation of markets falling on good news and markets rising on bad news. This will probably continue until we know the Fed’s position and they have made a clear public statement as to their future QE intentions. Until we know the facts, the market will continue to trade based on the ‘probability’ of what is most likely to happen.

At some point in the future QE will stop. I don’t have a crystal ball so I can’t tell you when that will be. What I can safely predict however is that when it happens, the US economy will be standing on its own two feet again and that can only be a good thing.

We will then be back to normal monetary policy conditions and low and behold, the market will start to rise on good economic news and fall on bad news. Just like the good old days before the term Global Financial Crisis was coined.

Credit for this great article goes to Nick McDonald.

The Famous Turtle Trading Program

In the middle of 1983, two established traders, Richard Dennis and William Eckhardt had a discussion over what type of person could learn to trade.

Dennis believed that he could teach people to become great traders. Eckhardt thought genetics were the determining factor.

In order to settle the matter, Dennis suggested that they recruit and train some traders and give them actual accounts to trade to see which one of them was correct.

They took out a large ad advertising positions for trading apprentices in Barron’s, the Wall Street Journal and the New York Times. The ad stated that after a brief training session, the trainees would be supplied with an account to trade.

This group was invited to Chicago and trained for two weeks at the end of December, 1983. They began trading small accounts at the beginning of January. After they proved themselves, Dennis funded most of the trainees with $1 million in February.

“The students were called the ‘Turtles.’ (Mr. Dennis, who says he had just returned from Asia when he started the program, explains that he described it to someone by saying, ‘We are going to grow traders just like they grow turtles in Singapore.’)” – Stanley W. Angrist, Wall Street Journal 09/05/1989

The Turtles became the most famous experiment in trading history because over the next four years, they earned an aggregate sum of over $100 million dollars.

Richard Dennis proved that with a simple set of rules, he could take people with little or no trading experience and make them excellent traders.

First of all, this inspired a well-known and very popular movie starring Eddie Murphy, Dan Aykroyd and Jamie Lee Curtis, which most people have seen, and consider a classic. Here’s the trailer:

Trading Places movie trailer

Next, finding information on the Turtle systems has often proven to be quite difficult- one of the traders, Curtis Faith published a book on it, and another author Michael Covel released a well-known researched book on it. They can be found here:

Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders Hardcover
by Curtis Faith (Author) 

The Complete TurtleTrader: How 23 Novice Investors Became Overnight Millionaires
by Michael W. Covel (Author)

The system was of course, a trend-trading system, based on very specific signals- the books are a great read, and source of inspiration for new trades, and not that out-dated.

A fellow London trader and writer for the Huffington Post, Zaheer, wrote a brief article with more information on the system, since his mentor was trained by one of the original Turtles.

It’s worth a read- you can find the link here:

Zaheer AnwariFOREX, Futures and Stocks Trader

The Turtle Traders

The Bet

“We’re going to raise traders like they raise turtles in Singapore.” That is what one of the world’s famous commodities speculators, Richard Dennis, said to his good friend William Eckhardt, an equally successful trader. Back in 1983…

Tsk, tsk- Forex-Trading Firm FXCM Fined by U.K. Regulator

Firm to Pay $16.7 Million to Settle Allegations of Withholding Profits From Clients

By

JENNY STRASBURG And
MAX COLCHESTER

CONNECT

Updated Feb. 26, 2014 4:28 p.m. ET
LONDON—Foreign-exchange trading firm FXCM Inc. FXCM -1.30% agreed to pay fines and refunds totaling almost £10 million ($16.7 million) to settle allegations by a U.K. financial regulator that the company withheld profits from clients and failed to inform British authorities that it was under investigation in the U.S.

The Financial Conduct Authority said that U.K. units of FXCM withheld £6 million from customers on foreign-exchange transactions between August 2006 and December 2010. The regulator said the broker pocketed profits when exchange rates moved in its customers’ favor while a trade was in process, but it passed on losses that occurred on other trades.

FXCM, which is based in New York and is publicly listed on the New York Stock Exchange, is a dominant broker in online foreign-exchange trading for retail clients and serves banks, hedge funds and other asset managers. The company in 2012 sought to boost its institutional-trading business by investing in, and trading with, an electronic-trading platform called FastMatch, in partnership with Credit Suisse Group AG CSGN.VX -0.73% . In trades with retail customers, FXCM matches orders electronically with quotes from more than a dozen banks and other so-called market-making firms, including high-frequency-trading firms. FXCM earns a “markup,” or fee from clients based on trading volume, according to the company’s description of its business.

As part of its settlement with the British regulator, FXCM agreed to pay £4 million in fines plus almost £6 million to refund money to U.K. clients.

In a statement, FXCM played down the impact on customers as “typically very limited,” with individual traders suffering an average hit of $3.70 apiece because of the practices over the four-year period addressed in the settlement.

“It’s not like this was a major source of profit,” FXCM Chief Executive Drew Niv said in an interview Wednesday, adding that FXCM operated similarly to competitors when it pocketed price improvements instead of crediting customers. FXCM changed its practices in 2010 to pass along those price improvements to customers, Mr. Niv said.

“This is how the system was set up. As far as we were concerned at the time, the customer traded with us, and we hedged,” Mr. Niv said. “The only thing we held back on was the price improvement. We still gave the customer the best price out of multiple market makers.”

About the FCA agreement, Mr. Niv said, “The idea of a settlement is I don’t argue with it.”

The FCA said the fine wasn’t related to any continuing probe into allegations that traders at banks and other institutions attempted to rig foreign-exchange markets.

FXCM said it had provisioned $15 million in the third quarter of 2013 for this matter. “All clients receiving restitution will be notified within 60 days,” the company said. FXCM’s U.K. customers who lost more than $1 as a result of its practices will be reimbursed to their accounts.

The FCA became aware of the practice in 2011. But it was unaware that U.S. authorities had begun their own probe into the matter a year earlier. In 2011, FXCM agreed to pay more than $14 million to settle allegations from U.S. market regulators that the company had failed to supervise customer accounts. As a result, regulators said, FXCM customers suffered detrimental pricing on trades.

FXCM’s failure to alert the FCA breached requirements that businesses be open and cooperative with the U.K. regulator. “I’m not contesting that,” Mr. Niv said, adding that an FXCM executive at the time responsible for informing the British regulator mistakenly “thought he had.”

See how other traders trade- with the trend!!

Hi everyone,

Just for fun, and to further your education, here are two things you can do to improve your confidence in your trading journey:

1. Watch famous trader Marty Schwartz, one of author Jack Schwager’s subjects from his renowned book Market Wizards, speak to graduates- his only known seminar:

A Market Wizard Speaks: Marty Schwartz at Amherst College

2. Meet and talk to other professional traders, such as my friend Zaheer Anwar (http://www.londoninvestorshowforex.com/speakers) – who was a speaker at last week’s London Investor Show at this event:

https://www.eventbrite.co.uk/e/live-seminar-stock-market-success-tickets-10561839747?ref=ecal

Be careful out there trading this week!

Ads

 

 

For those of you who want to be professional speakers or coaches:

Hi everyone,

Because of what I do, most people that I meet (especially delegates) are embracing their individual talents- and there is an increasing demand to transfer skills out there in a very competitive world. If you are wanting to become a professional coach or speaker, I recommend you look at Judymay’s stuff!

BECOME A HIGHLY SUCCESSFUL COACH, SPEAKER AND EXPERT

Every Monday and Tuesday over TEN weeks, 16+ intensive live sessions with Judymay to transform you, your business & your lifestyle.  Workbook, interviews & extra live sessions will be included, (8 weeks live + 2 weeks guided home study).

Here’s the link for her next event:

http://supercoaches-judymay-murphy.eventbrite.com/?aff=supercoaches40&afu=87430137667 

NB. Personal growth, and Trading Psychology- Negative surroundings

Hi everyone,

This post is an important one, even if you are not a trader. It’s amazing how often our confidence is undermined and/or damaged by the people around us, and how we allow this to happen. In life, we have more power than we know of, and the first step to self-actualisation, which is ‘living at one’s fullest potential’ is acknowledging this and learning to master it. We must identify who we are separate from our relationships, and empower ourselves. Other people can not empower us- it doesn’t work that way.

What has this got to do with trading? More than you could ever know. Trading is just one way to change a person’s life in terms of quality- there are other ways to make money. However, who do we become when we have the freedom that wealth brings? What will we do, if we don’t have to stress over so many things, or get up in the morning to go to work? Many people really have no idea- they are afraid that they will lose their sense of purpose, and so they unconsciously sabotage anything that can truly change their lives, whether it be a new relationship, job, opportunity or even compliment. ‘Change’ is going into the unknown for many folk- and it takes a lot of strength, that we have to find within ourselves, to truly make a permanent change. Please be aware that it’s not only hard for us as individuals to change, but it’s just as hard for those around us to deal with. Our changing can be a reflection to them, of their own inability to change, and so, they will resist it alot or a little- nobody likes to get left behind. This article should help you to become more conscious of intentional and un-intentional actions of those around you, who do not want you to change for the better- I hope it makes a difference in your lives:

7 Signs You’re Hanging With the Wrong Crowd – BY MARC CHERNOFF

http://www.marcandangel.com/2014/01/22/7-signs-youre-hanging-with-the-wrong-crowd/

You will only ever be as great as the people you surround yourself with; so be brave enough to let go of those who keep bringing you down.

Your happiness and self-worth shouldn’t be entirely dependent on others. But the truth is, personal relationships do have an influence on how you feel, and that includes how you feel about yourself.

An old college friend, Axel, and I grabbed some coffee this morning to catch up. About halfway through our conversation he admitted to me that he was really stressed out. The more I listened to his story, the more I realized that many of his relationships felt like a burden to him. The people he had surrounded himself with weren’t supportive in the least. But it was a burden to which he’d become so accustomed, he didn’t even know he’d been carrying it until he spoke to me and was able to lay down the heavy load for a while. The pain of relationships that aren’t working are like a subtle background ache – we don’t notice how much they hurt because we’ve grown so used to the constant discomfort.

How have you been feeling lately? How are your relationships going? The two can be more intertwined than we often realize. As soon as I suspected Axel’s relationships might be having an impact on his happiness and self-esteem, I asked him a question that made him think:

What should a healthy relationship provide for the people in it?

Truth be told, life is way too wonderful and short to waste time with people who don’t treat you right. So surround yourself with people who inspire you to smile. People who help you up when you’re down. People who would never take advantage of you. People who are honest and genuinely care. They are the ones worth keeping in your life. Everyone else is just passing through.

If you feel like your relationships are bringing you down, here are some signs you may be hanging with the wrong crowd:

1. They say you don’t have what it takes.
Never let someone’s opinion of you wash away your inner strength and spirit. Never sacrifice who you are or what you aspire to be because someone else sees things differently. Sometimes even those who you consider to be close confidants will carelessly crush your potential with smiles on their faces. They will discredit your ideas, exhibiting zero emotional support, and try to persuade you to forget part of the person you are, along with the person you are capable of becoming.

It usually takes just a few negative comments to kill a person’s dream. Don’t speak these negative comments to others, and don’t listen to those who do. Don’t let people interrupt you and tell you that you can’t do something. If you have a dream that you’re passionate about, you must protect it. When others can’t do something themselves, they’re going to tell you that you can’t do it either; and that’s a lie. These people are simply speaking from within the boundaries of their own limitations.

Don’t let weak minds convince you that you aren’t strong enough and smart enough. You are. Surround yourself with people who help strengthen you – those who see greatness in you, even when you don’t see it in yourself.

2. They don’t support who YOU are.
We are all weird in some way. What sets you apart may seem like a burden, but it’s not. Most of the time it’s what makes you so incredible.

You need to know that everyone deserves love and respect without terms and conditions. Everyone has a right to live their life the way they want. Everyone has the right to be happy without feeling guilty. No one has the right to hurt anyone. No one deserves abuse of any kind. No one is not good enough to be exactly who they are. And yes, this includes YOU.

Always choose to be true to yourself, even at the risk of incurring ridicule from others, rather than being fake and incurring the pain and confusion of trying to live a lie. It’s OK to do what you want to do. It’s OK to be happy with yourself and the way you live your life. It’s OK to say no to others and yes to your own desires. There’s no better freedom than the freedom to be exactly who you are. Give yourself that gift, and choose to surround yourself with those who appreciate your decision. (Angel and I discuss this in more detail in the “Relationships” chapter of 1,000 Little Things Happy, Successful People Do Differently.)

3. They only respect you when you live their way.
Real friends (and family) meet in the middle. When there’s a disagreement, they work out a solution that works for both parties – a compromise, rather than a need for the other person to change or completely give in. If someone around you is all take and no give, you have to take a stand.

It takes a great deal of courage to stand up to your enemies, but just as much to stand up to the people closest to you. Sometimes bullying comes from the most unlikely places. Be conscious of how the people in your closest social circles treat you, and look out for the subtle jabs they throw. When necessary, confront them. Do whatever it takes to give yourself the opportunity to live authentically.

Exercise your inner genius. Listen to your inner voice. Try what you want to try, go where you want to go, and explore the depths of your own intuition. Don’t accept false choices just because someone else doesn’t feel what you feel. Don’t let others leash your dreams and your future. If something feels right, it probably is. Give yourself the fair chance you deserve. You CAN, so don’t listen to anyone who says you can’t. Do anything you want as long as it’s not hurting others. Don’t take crap; you deserve better.

4. They create and thrive on negativity.
It isn’t easy to remain positive when negativity surrounds you, but remember that you have full control over your attitude. Think of it this way: An entire body of water the size of the Pacific Ocean can’t sink a ship unless it gets inside the ship. Similarly, all the negativity in the world can’t bring you down unless you allow it to get inside your head.

This is your life. You may not be able to control all the things people do to you, but you can decide not to be reduced by them. You can decide not to let their actions and opinions invade your heart and mind. And above all, you can decide whom to walk beside into tomorrow, and whom to leave behind today. (Read Emotional Vampires.)

5. They condone your self-abuse.
Always keep in mind, first and foremost, that you have to treat yourself the way you want others to treat you. The amount of abuse you tolerate in your relationships is often equal to the amount of abuse you heap on yourself. If you are used to telling yourself that you’re ugly, that you are destined to fail, and that you’re not capable of performing in the world without someone holding your hand, then you will accept and feel most comfortable in relationships with people who reinforce these same negative beliefs.

This is precisely why you need people in your life who truly know and love you – true friends and family – people who see the pain in your eyes while everyone else still believes the empty smile on your face. In other words, don’t look for people who will solve all your problems; look for those special few who will sit down and face them with you.

6. They make you feel unattractive.
Sadly, we’re taught to believe that miniature waists and perfect tans are beautiful. We’re made to believe that blonde hair with blue eyes will win every time. But the truth is, originality is beautiful. Big brown eyes, green eyes, blue eyes alike. Curves, and lots of them. Your natural skin tone is beautiful. Your hair color and your smile. Your voice, your laugh, and your personality. Every inch of you that shines with your unique essence…

You are truly beautiful just the way you are. If someone close to you says otherwise, they aren’t as close to you as you think. Period. (Read Love Yourself Like Your Life Depends On It.)

7. They aren’t there for you when you need them most.
Surround yourself with those who believe in you, encourage you, and are willing to support you when it rains, not just when it shines. It’s during the toughest times of your life that you’ll get to see the true colors of the people who say they care about you. So don’t make too much time for people who rarely make time for you, or who only make time for you when it’s convenient for them. Know your worth.

And remember, relationships are rarely 50/50 at any given instant in time. You can’t always feel 100%, or a full 50% of a relationship’s whole – life is simply too unpredictable for that. So on the days when you can only give 20%, the other person must give 80%, and vice versa. It’s never been about balancing steady in the middle; healthy relationships are about two people who are willing to make adjustments for each other in real time as needed, and give more when the other person can’t help but give a little less.

Afterthoughts
It’s not always where you are in life, but who you have by your side that matters. Some people drain you and others provide soul food. Don’t jeopardize your dignity and self-respect by trying to make someone accept, love and appreciate you when they have proven that they are incapable of doing so.

When you leave the wrong people behind, the right things start happening. What would happen if you surrounded yourself with people who made you better? What would happen if you started spending time with the RIGHT crowd?

Think about it.

How to select winning Snipers and Pivots

SNIPERS and PIVOTS CHECKLIST

DAILY

Daily chart MUST be trending, and

MUST be in phase 1. (NOT sideways or noisy)
*Weekly in phase 1 a BONUS, otherwise, be aware of weekly cycles.

240 / 4HR

Price is TRENDING nicely (good angle), and ideally cycles are easily visible.
Ideally in first half of phase 1, and not over-extended.
DOWNTREND means price is below 50 and 200 EMA. Bonus if 20EMA is also below 50EMA.
UPTREND means price is above 50 and 200 EMA. Bonus if 20EMA is also above 50EMA.
TIP: Use buyers/sellers bars in buy/sell one to help read cycles, combined with BREAK-RETEST pattern.

60/ 1HR

Price is TRENDING nicely (good angle), and ideally cycles are easily visible.
Ideally in first half of phase 1, and not over-extended.
DOWNTREND means price is below 50 and 200 EMA. Bonus if 20EMA is also below 50EMA.
UPTREND means price is above 50 and 200 EMA. Bonus if 20EMA is also above 50EMA.
TIP: Use buyers/sellers bars in buy/sell one to help read cycles, combined with BREAK-RETEST pattern.

SNIPER entry
Is then on cycles off the 50EMA on 5min timeframe. Because target/stop is 20pips, trade only pairs where spread is less than/equal to 5.

PIVOT entry
Is then off blue central pivot, on either 60min, or 5min timeframe.