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Eur and ES spikes
- Thread starter cmaxb
- Start date
Quote from cmaxb:
Kind of a dumb question. I'm not an economist .. I noticed Eur Usd futures and ES futures moving together since beginning of Apr., so they appear correlated. On Fri. 4/6, they spike in opposite directions .. after announcement.
Correlations come and go, so I wouldn't get too hung up on any one in particular.
Not a dumb question at all. Actually, a very good question. There is an answer, but it is not straightforward and requires understanding many concepts about how the market works. Finding the answer will tell you a lot about the current state of buyers and sellers.Quote from cmaxb:Kind of a dumb question. I'm not an economist .. I noticed Eur Usd futures and ES futures moving together since beginning of Apr., so they appear correlated. On Fri. 4/6, they spike in opposite directions .. after announcement.
Okay, forget the correlation. Why did Euro spike UP? Why did ES continue DOWN?Quote from logic_man:Correlations come and go, so I wouldn't get too hung up on any one in particular.
The OP is asking an interesting (and very relevant) question. Why brush this off with "don't get hung up on it"? There is an answer and it is worthwhile to do the reasoning to understand the why. If you know the answer then you will know how worthwhile acquiring this knowledge is, and if you do not know the answer then how can you pass informed comment on whether the answer is worth discovering?
Maybe instead of approaching from a correlation approach, first try to understand one market before analysing two together. So taking either ES or Euro, why was the movement on the report logical given the prior condition, and what other variations were possible?
Quote from Zen Student:
Not a dumb question at all. Actually, a very good question. There is an answer, but it is not straightforward and requires understanding many concepts about how the market works. Finding the answer will tell you a lot about the current state of buyers and sellers.
Okay, forget the correlation. Why did Euro spike UP? Why did ES continue DOWN?
The OP is asking an interesting (and very relevant) question. Why brush this off with "don't get hung up on it"? There is an answer and it is worthwhile to do the reasoning to understand the why. If you know the answer then you will know how worthwhile acquiring this knowledge is, and if you do not know the answer then how can you pass informed comment on whether the answer is worth discovering?
Maybe instead of approaching from a correlation approach, first try to understand one market before analysing two together. So taking either ES or Euro, why was the movement on the report logical given the prior condition, and what other variations were possible?
There was no other variation possible. If there were, it would have happened in another way. A trader has to trade the market that exists, not some possible market. And while correlations do seem to have persistence, they are not permanent, nor does their breakage seem to be predictable.
FWIW, I trade the ES and the Euro on price movements alone and the ES did give a sell signal and the Euro a buy signal. For various reasons, I think those signals are "false positives" so I did not take the trades, but there's still a chance both will work out to have been the correct signals, since not all of my "false positives" actually turn out to be false. Does it bother me that I got these conflicting signals? No, because what does and does not bother me doesn't matter when it comes to profitable trading. So, I was encouraging the OP to adopt this mindset not because I don't think the answer might be knowable or not but because having that information adds no additional value once you understand that price action alone should determine your trading positions, not the reasons for price action. Livermore talks about not needing to know the reasons for things that happen in the market, just needing to know how to react to them when they happen and I think that advice is spot on.
If it were possible to predict on Thursday at the close that ES was biased to go down and Euro was biased to go up then it follows that the breakdown of the correlation was also predictable.Quote from logic_man:
There was no other variation possible. If there were, it would have happened in another way. A trader has to trade the market that exists, not some possible market. And while correlations do seem to have persistence, they are not permanent, nor does their breakage seem to be predictable.
If you don't know the answer, how can you speculate on whether it is worth knowing? Yes, one might be able to reach a goal without knowing this specific answer, but that is a commentary on the factors required to achieve the goal not on the usefulness of the undiscovered information. If the goal is to make a profit trading then this can be done in other ways, if the goal is to understand the market then this is a question in need of an answer.
The OP was asking why the markets moved. Why ES went down without Euro going down and why Euro went up without ES going up. There is an answer to this question. Instead of answering it, you seem to argue that the reason doesn't matter even if it could be known. Without having the answer, how can you comment on how useful it could be?
I am not giving the answer, only stating that there is an answer and it is possible to arrive at this answer by asking the correct questions.
As for the usefulness...this knowledge allows the ES short to hold through the figure and exit at the close, and the Euro short to exit ahead of the news, sell back in at 1.31 or better, and exit Monday or Tuesday below 1.30.
Quote from Zen Student:
If it were possible to predict on Thursday at the close that ES was biased to go down and Euro was biased to go up then it follows that the breakdown of the correlation was also predictable.
If you don't know the answer, how can you speculate on whether it is worth knowing? Yes, one might be able to reach a goal without knowing this specific answer, but that is a commentary on the factors required to achieve the goal not on the usefulness of the undiscovered information. If the goal is to make a profit trading then this can be done in other ways, if the goal is to understand the market then this is a question in need of an answer.
The OP was asking why the markets moved. Why ES went down without Euro going down and why Euro went up without ES going up. There is an answer to this question. Instead of answering it, you seem to argue that the reason doesn't matter even if it could be known. Without having the answer, how can you comment on how useful it could be?
I am not giving the answer, only stating that there is an answer and it is possible to arrive at this answer by asking the correct questions.
As for the usefulness...this knowledge allows the ES short to hold through the figure and exit at the close, and the Euro short to exit ahead of the news, sell back in at 1.31 or better, and exit Monday or Tuesday below 1.30.
Given that one has limited time in which to learn the answers to the various questions of life, one needs to prioritize. If you are going to try to trade futures, which I assume is the OP's goal, knowing why the Euro and ES diverged after being positively correlated for some time is pretty low on the priority list relative to learning how to read price action itself, regardless of the underlying cause. If you know how to read price action, I am saying, the need for understanding the reasons for the price action is superfluous.
If the Euro goes down because Angela Merkel has a heart attack, it means nothing more than it would if it went down for some other reason or if it went down for no discernible reason. Unless you actually survey every market participant and get their reasons for doing what they did, your likelihood of getting an accurate assessment of the reasons is close to nothing, anyway, so all you will end up with is a variety of subjective opinions, whereas price action gives you objective data of what actually happened. Since objective knowledge trumps subjective opinion, this is another reason to favor spending one's time reading price action over trying to discern causes.
How can you possibly learn to read it without understanding what creates price action and how prices are caused to move?Quote from logic_man:
If you know how to read price action, I am saying, the need for understanding the reasons for the price action is superfluous.
Simple answer for newbies who wish to evaluate claims that price action can be read without any such understanding: ask to see the trading results of those who claim they can trade the market successfully without understanding how it works.
Price action does indeed give objective data about what actually happened. The aspiring trader needs to understand what is likely to happen in the future in order to place profitable trades.
Quote from Zen Student:
How can you possibly learn to read it without understanding what creates price action and how prices are caused to move?
Simple answer for newbies who wish to evaluate claims that price action can be read without any such understanding: ask to see the trading results of those who claim they can trade the market successfully without understanding how it works.
Price action does indeed give objective data about what actually happened. The aspiring trader needs to understand what is likely to happen in the future in order to place profitable trades.
If you know what did happen and you know how to analyze it correctly, you can place profitable trades without knowing why it happened. Or do you deny that there is autocorrelation in prices? As far as I can tell, academics have pretty much given up on the idea that there is no autocorrelation in the markets and now it is a question of how much of it there is. The ultimate cause of price action is disagreement over the "correct" price for an asset. Once you assume that generic cause is operative at all times, finding more proximate causes becomes irrelevant.
As far as trading results, one could say the same thing and ask for the results of those who claim that traders need to know why something happens, rather than simply knowing that it happened. Opinions about why things happen are a dime a dozen and it doesn't directly follow that knowing why something happens adds anything to a P&L nor does every trader who knows why something happens outperform every trader who doesn't care why something happens. In fact, I see more ET threads which indicate that it is traders who seek a fundamental cause behind each market movement who are more frustrated with their trading results than I see similar threads from traders who rely on price action, so I would argue that the latter method is more likely to lead to trading profits.
Quote from logic_man:
If you know what did happen and you know how to analyze it correctly, you can place profitable trades without knowing why it happened.
There's the rub. If you know what is going to happen and how to analyse it correctly, you can indeed place consistently profitable and accurate trades in anticipation of this.
What you call "price action" is nothing more than what has happened in the past. This in itself does not give the future unless one can see the decisions which have been made, the reasons for the prior price action, and therefore where the market now needs to go (with a high degree of probability).
The answer is that you can use the market data from the past (price action) to predict what is likely to happen next, but only if you understand the "why" of the prior action. To say that it happened is not good enough. If you compare patterns visually only, you will be comparing things which appear to be the same condition to the untrained eye but which are totally different. This is why you see % success rates quoted for "pattern recognition" - a pattern "fails" z% of the time. If one was comparing like with like, the pattern would resolve in a similar way all of the time.
Your so called "price action" refers to two things: the prior market data, and a rudimentary method for interpreting it which is public knowledge. The limitations of this methodology are well known amongst professional traders...do some even use it to their advantage by setting traps for the unwary?
Lots of questions - your results will depend on how much responsibility you take for your thinking. Success or failure is a matter of thinking or lack of it. Opportunity open to all - happy hunting!
Quote from logic_man:
In fact, I see more ET threads which indicate that it is traders who seek a fundamental cause behind each market movement who are more frustrated with their trading results than I see similar threads from traders who rely on price action, so I would argue that the latter method is more likely to lead to trading profits.
Easy way to test this. How about you give us 5 trading calls with entry, stop, and target. Any liquid futures market of your choice. Limitations is that the move must be called within 3 minutes of the entry signal being generated, and give a "decent" number of points (say >3 on the ES or >15 on the Euro.
I'll start.
Long ES 1375 STP 1373 target 1380.