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I am contributing as a full time trader with 10 years experience ( fixed income, CL, ES, currencies). I don't think that something wrong with that that I am working in analysis company. I didn't come here to sell/promoting.
Can you help answer these questions from other members on NexusFi?
Your explanation does make sense. I should have been more specific about how a trade would be exited. It seems slippage would be a concern even for just a 1 or 2 lot trade under certain conditions. Although the slippage in the context of a swing trade should be of no importance considering the targets.
Another thought I had regarding news events is how often does liquidity literally disappear? Like for instance during the flash crash (although not news related) you could see the dom become practically empty. Do regular events like FOMC or Inventories every have the same effect? I mean there is slippage because the market is thin at the time, then there is the situation where there is just no one there at all creating the gap kind of like during the Franc collapse in 2015. It really didn't matter if you have a stop because there was literally no one there to let you out.
I realize that last example is among the most extreme of the extremes but is there anything that can be done to avoid such a situation? Is there something Janet Yellen could say that causes interest rates to gap $20K per contract? I know these are not exactly questions that have a definite answer but I think it would be helpful to brainstorm these topics as they are important.
Thank you for the input. Part of my issue isn't so much the question of where to put a stop. I know the importance of that in the big picture and I'm not discounting it. But it seems at times the market will consolidate, then big news, then massive volatility. At what point do we just say this is a gamble vs. this is trading? Is betting on the reaction to the news actually a strategy in itself? I mean it certainly takes on the appearance of a blind gamble. It seems like with swing trading even though stops are generally wider you may run into the situation where you have an entry that is very close to such news events and therefore cannot effectively manage the risk unless the trade already has a cushion.
Bear in mind that slippage would apply if you decided to exit the trade during the data release which, in the context of swing trading, as you rightly point out, would not apply.
To the best of my understanding liquidity does not disappear completely. There are market makers (also known as liquidity providers) whose job is to provide liquidity. Having said that, they may elicit in extreme events to take much less risk and lower the liquidity levels they are providing.
Again, in the 2015 Franc example I believe the heavy losses sustained were due to people exiting positions at extreme levels. But to be able to exit a position that means that someone is taking the other side of your trade.
It may sound glib but I think the only way to avoid these situations altogether is not to be in the market. Personally at the stage I am at I would not sleep if I had any position open overnight. That may change in the future but as it stands I prefer being an intraday trader.
As for statements such the ones issued by Yellen and the like, bear in mind that one of the mandates of people such as her is price stability. The same goes for the ECB in Europe. So they tend to craft their statement in such a way that avoids, rather than seeks, extreme market movements.
I haven't been in this business for that long but I have not seen the extreme movements you speak of. I was around during the Swiss Franc crash as well as Black Monday in 2015 (I think it was 24 Aug). I have a video downloaded of that day and it shows the ladders for DAX, ES, CL, NQ and Gold. Liquidity was still there. Not where you would want it, but not gone completely.
Professional traders waiting after the release (they don't like to bet), for this reason you can see many times you can see that even news that As Expected leads to massive movement, if you like to enter to swing trade close to event release, something it's good to place entry order significant under the base price/open the trade after the release happens and you understand that it's support your trade idea.
Interesting. I guess I never put together that part of the Fed and ECB is keeping prices stable.
My comment about the Franc was based on the chart I looked at with a volume histogram. So not a perfect representation but a reasonable one. Before the massive crash there was a lot of volume changing hands with huge volatility. So obviously there were at least a few people/firms that new something important was about to happen. It seems that the best thing we can do is to keep eyes on the depth to see if/when liquidity does dry up. In such an event I cannot think of a better way to avoid disaster. Like in the ZN if suddenly the depth goes from 2000+ per level to 300 per level and I don't know why then probably something is going on that I forgot or have no knowledge of in the first place.
I don't see how that's feasible within the context of this thread, i.e. swing trading - unless you're willing to be glued to your screen for 3 days in a row with no sleep - that's a lot of coffee
You are correct. It isn't feasible at all. My idea with swing trading was really so I didn't have to be glued to the screen all the time. But as I started learning more about order flow and volume and learned how it all worked it has me thinking that it should be a core component of any trading method. You have answered well my questions regarding the news. I guess I have to accept that any data coming out during an open position can be good or bad depending on how the market reacts. I think all the straight up/down 50+ tick bars that are caused by news skew my interpretation of what a swing trade really is. Capturing a move that is 200 ticks is a large move but I can't help but shake the fact that in one way or another part of the end result will often be due to some news pushing price for/against me.
But in the long run, isn't the news the fundamental driving force for institutions anyway? I mean certainly a firm trading multi year positions is taking into account the numbers.