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Preparing for Quantitative & Qualitative news events might be simpler than you think, as long as you know what to look for.
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When we can know when certain data points or central bank statements or unscheduled news events, how we can know whether they are better or worse than expected?
So to answer this, we can draw a line between two different types of data points or events, namely quantitative data and qualitative information. So something like quantitative info is things like actual measurable data.
Things like actual economic indicators, like today we had durable goods and GDP second estimate and initial jobless claims, these are all actual data and we can quantify whether the data is better or worse than prior by just looking at the actual numbers. So when it comes to qualitative info, that’s the more tricky part, and that takes some getting used to because these are things that are not really measurable like actual data points.
They are things like, nuances in trading, whether a central banker has said something hawkish or dovish, whether a central bank’s statement is more hawkish or more dovish than expected, whether political comments are seen as a positive or negative for the country and thus the currency, those things are more nuanced.
But the qualitative side of trading tells us that due to Germany being the biggest contributor to overall EU GDP, and knowing that it is a big part of the German economy is automobiles, knowing that, that’ll tell us that quantitatively, that news is going to be negative for the Euro and possibly negative for something like the German DAX 30 and the EURO STOXX 50 as well.
So having said that, the question is how can we better know when those type of news will be negative for the market? Well, two things really. It comes down to expectations once again, but also the overall market knowledge that you have is a major important point to keep in mind as well. So thinking of expectations first, right?
It’s easier to, to some extent, to plan ahead for quantitative factors and data like economic indicators because we know exactly when the data will occur, and we know exactly what the prior number was, and we know what the consensus is for that particular event.
So we can, just by looking at the numbers we can know, okay, this thing is better or worse than expected. But just knowing that alone won’t help us. We need to know what the expectations was for that event before the data is released. And basically, knowing how that type of data point, how it changes the market’s expectations for the broader scheme for that economy.
When looking at qualitative analysis, it might be more nuanced because you’re trying to evaluate how the market might feel about something, how it might feel about the central banks, how it might feel about tariffs on a country, etc. It’s more subjective but it will be also driven by expectations, which is the key point to remember.
Now the more trickier one is the unexpected and the unscheduled news events. Think of an announcement like tariffs or unscheduled comments from central bankers. Now, this might require some additional research on your part as a trader. For example, make some time to study some of the important economic factors that might influence the major economies. So this will be things like knowing what the major trading partners are for the major economies and knowing what each major economy’s biggest export is and what part of their economy is the biggest contributor to their GDP.
So think of things like iron ore and coal for Australia and oil prices for Canada and automobiles for Germany or the services industry for the UK. All of those type of things will help you do better trade the more qualitative news items when it hits the wires. And for unexpected central bank comments, it’s also gonna take some additional research.
So ahead of time you can know what these market expectations are for a particular central banker. So if it’s a dove or a hawk, you can know ahead of time, okay, if this guy comes out and says something hawkish or dovish, I’ll know that that goes against what the market is currently expecting from that person.
So either way, understanding the differences between the quantitative and the qualitative side will help you to better prepare for these events, but also looking at the expectations is important and making sure that your overall market knowledge is also up to date with what type of news might be important for the major economies.
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Forex Event Driven Trading Questions, Trading Quantitative & Qualitative Events.
Quantitative Occasion Trading Versus Over-Simplistic Assumptions
Spikes do not differ much in this regard, they just take place over a smaller window of time. A spike happens in the first place due to the fact that the marketplace has just learned new info, info which is not yet “valued in”. Depending upon the severity of the info, the spike will certainly be huge or small, and proceed or fail. To clarify this principle a little far better, I’m going to cite what a number of event-driven measurable approaches do on a regular basis:
Programmers of these event-based (spike) trading approaches are able to measure information retrieved from financial information launches instead quickly. They just take the deviation from the real and expected number, pair it with various other financial information launches that take place then in time (if needed), take the typical change in cost prior to and after specific discrepancies happen, the timeframe in which these modifications take place, and are able to optimize an approach based on this and any other technological elements they desire. They have a background of information (numbers) with which to function.
In all of the elements listed above, numbers are available, and equipments need numbers. However what occurs when a spike is triggered by a remark from a high ranking government official? No numbers there, just words. Yes, words.
What concerning words? Words, when it involves shows, can be numbers. Let me clarify:
Words are weights, when measured versus each other in relation to cost motions. “downgrade” brings a various weight than “stimulus” or “protect” or “shield the money”, etc., depending on who it is originating from and the context of various other words utilized at the time.
Low and high ranking government officials can be weights. The high ranking government official considers more than a reduced ranking government official, and so on. A ranking agency, and words utilized in their news release, can be weight. AND SO ON and so on.
So when you take an industry-standard information feed, designate weights (numbers) to whatever stated over versus typical cost motions, time, various other technological elements, etc., you wind up with an example of information that can be optimized right into a possibly lucrative trading approach.
As well as while I understand it all might appear outrageous at first, if you think I’m just pulling your leg on every one of this, reconsider. While I’m giving an extremely simplified description of the principle, it is without a doubt utilized in mostly all markets by different participants, and most definitely in this one.
Exactly how does forex trading work?
There are a variety of different manner ins which you can trade forex, however they all function similarly: by at the same time buying one money while marketing one more. Commonly, a great deal of forex deals have actually been made using a forex broker, however with the increase of on-line trading you can make the most of forex cost motions utilizing derivatives like CFD trading.
CFDs are leveraged products, which enable you to open up a setting for a simply a portion of the amount of the profession. Unlike non-leveraged products, you do not take possession of the property, however take a setting on whether you think the marketplace will certainly climb or fall in value.
Although leveraged products can magnify your profits, they can additionally magnify losses if the marketplace relocates versus you.
So Bottom line:
Event-driven trading approaches provide a terrific method to take advantage of boosting cost volatility, however there are several risks and constraints to consider. When developing and performing these approaches, it’s important for investors to set up tight danger controls while giving enough area for the unstable situation to play out in the market. Ultimately, event-driven trading approaches provide a beneficial arrow in the quiver of any type of active trader.
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