Perhaps the dumbest question ever...

L

Longtermtrader

I know it's maybe dumb, and perhaps I even know the answer to this same question (or at least some of the answers), but still I don't get market reactions to some news (which in fact are not news at all).

Below the 5min chart of EurUsd, with highlighted in blue the bar when Yellen started speaking yesterday.

I know that she was dovish and so on, but can someone please explain me what could she possibly have said in the very first 20 second of her speech, to have EurUsd spike by about 40/50 pips altogether?

I mean, didn't she even say 'hello'? She just brutally entered the scene by saying that she will never raise rates again?

My point is, this is not reaction to any news. Market participants were already bearish on the USD, as they proved being last week after Fed left rates unchanged and after ECB didn't commit to further easing. But then why waiting for Yellen to begin her speech and not taking a position before?

And then, being so bearish on USD and bullish on bonds and stock markets, could it be a case of collective wishful thinking?

I am sure I am missing something, but still I am puzzled...



eurusd 5m.png
 
It's the text of the speech, which probably got released around the time she started speaking. The algos parsed it (probably counting the number of times "uncertainty" was mentioned or some such thing) and immediately went into the mkt. So this was, in fact, a very quick reaction to the news that the text of the speech was significantly different to the mkt's expectations.
 
Was it significantly different to market expectations?

I mean, yesterday move was not even that big, but last week's reaction to Fed decision to leave rates unchanged could have only been explained where market participants were estimating a reasonable chance of rate hike. But, am I leaving on Mars or nobody was ever discussing about a rate hike before last Fed meeting?
 
Longtermtrader said:
I know it's maybe dumb, and perhaps I even know the answer to this same question (or at least some of the answers), but still I don't get market reactions to some news (which in fact are not news at all)...
More...

There's been several Reuters, Bloomberg and FT online articles over the recent few years involving algorithm trading systems by financial institutions that analyze social media for short term trades to go along with other types (the ones we usually here about) of algorithm trading systems. In fact, there are several companies in the business of algorithm trading systems that make trade decisions based solely upon clues in social media and these companies sell their real-time analysis to some of the worlds top institutional trading firms and top quantitative hedge funds (I gave the names of these firms and links to the articles in another post here at ET) in which trade decisions are made within seconds (or less) of a market event.

I'm guessing is that when they (algorithms) identify something as trending on social media...they could care less if its not news at all as you refer to as. All they care about is if there's a short term opportunity on a hot trending topic among traders using social media (e.g. twitter, stocktwits, facebook and others). I prefer to call these "hyped events" regardless if some of us see it as news or not.

Next, you got what Martinghoul suggested...the other types of algos parsed the speech and immediately (milliseconds) went into the markets too. Then you have algos out there that react to algos. Its just crazy. Twilight zone stuff but occurring in today's markets. The reactions is so fast that no human trader can do such but we can react to the algos reaction.

Anyways, that speech by FED Janet Yellen was a hot topic for 1 - 2 days prior to the speech. Thus, it was obvious it was a "trending topic" for traders. I'm now guessing based upon what Bloomberg, Reuters and FT revealed is that the algorithms picked up on it and then as soon as that speech started...a big bang for the trading day.

As algorithms continue to grow in the markets, we'll continue to see volatility spikes like that one what some may consider as "no news at all" while other types of traders obviously do consider the event as news and as something to watch.
 
Last edited:
Longtermtrader said:
Was it significantly different to market expectations?

I mean, yesterday move was not even that big, but last week's reaction to Fed decision to leave rates unchanged could have only been explained where market participants were estimating a reasonable chance of rate hike. But, am I leaving on Mars or nobody was ever discussing about a rate hike before last Fed meeting?
More...
The mkt repriced the odds of an April hike (and, more generally, of 2 cumulative hikes this year) after Yellen's press conference 2 weeks ago. Since then, some other Fed speakers (e.g. Williams) came out and sounded a little less dovish than Yellen did, which led to some expectations that Yellen was going to tone down her language in the speech yesterday. That didn't happen and she sounded much the way she did in the press conference. You can see the evolution of the mkt's thinking on this graph, for instance (this is the graph of the probability of two hikes by year end; you can see the reaction to the Yellen press conference on the 16th of March, followed by the bounce, followed by Yellen really nailing it):
fed.jpg
 
Buck said:
nice post WRB. algo are taking over. my own algo works especially well on ES
More...

Thanks and more interesting is that I'm noticing a growth of retail traders traversing into algorithm trading too...preparing (adapting) for the future.

Just be careful and don't do anything illegal. You don't want to be like the Sarao trader out of London that was arrested for cause of the 2010 flash crash in the markets...a 1 trillion dollar pain in the butt. :D

http://www.bloombergview.com/articles/2015-04-21/guy-trading-at-home-caused-the-flash-crash

Funny thing not mention in the above article was that it was a "whistle blower" (someone from Goldman Sachs) that contacted the CFTC prior to the flash crash. They had been monitoring him already. Then someone contacts him and gives him a warning...

His reply was "fuck off". :D

Interesting considering Goldman Sachs and a few other top financial institutions have been complaining about the algorithms of private traders.
 
Last edited:
You must log in or register to reply here.
Back
Top