You can sometimes see propositioning before rate decisions and major data not after, ACD gives you the lens to see it. I am not gong to come out and say if x = y then buy c etc and this is not the way that ACD works. Its like Mav says it all about relationships and relative value.
ACD is great at revealing relationships that are not necessarily apparent to others. Its this attribute of ACD that allows you to see when certain instruments stop following regular rules and gives you a clue as to what may be occurring behind the scenes.
I won't disagree with your general proposition, just point out that sometimes pre-positioning ignores all this. Actual case in point.
I track indices on the majors as well as composite NLs like commodity currencies, risk off currencies (I know some insist JPY is not risk off, but it sure as hell strengthens when that is the climate, so I call it that) and even relative strength to gold,something I picked up from Ashraf Laidi's book that Mav recommended. I use this to get a general feel before honing in on a particular pair, and I prefer to use the generic 'pair' rather than split hairs about pairs and crosses and exotics.
NZD has had a good run, I made money off it, but momentum was tapering and all my numbers pointed that way. USD has been weak, I mentioned it earlier in this thread when the index fell below the 200D EMA and again I had made a buck off it. JPY has been strong against USD, a move I missed because I somehow manage to not trade 5 days a week, and didn't chase because I never do.
FOMC announced balance sheet reduction Wednesday, bullish USD. NZ had poor GDP, bearish NZD. Murmurs of Trump being under investigation for obstruction of justice, pointing to more JPY strength.
All my short term numbers pointed to a NZDJPY short on Thursday, indeed if you look at an hourly chart of NZDJPY it had already started moving down post-FOMC. BoJ rate decision Friday morning in the Asian session, they've used up all their bullets, magazine is empty, about the only thing they can announce is a balance sheet unwinding at some unspecified future point just to have something to talk about, like the SNB they have so much tied up in equities and ETFs it beggars belief. The Bernanke put may have passed, Kuroda and Jordan shop the supermarkets now.
I don't hold positions into a rate decision NORMALLY, but short NZDJPY early on Thursday in Asia, what could go wrong, at the least I'd make a quick buck before Friday and the rate decision and Kuroda speech. I went short.
I might as well have sat on a canister of fireworks on the 4th of July, my next holiday I'm looking forward to. After some early juice, my backside got lit up so fast I didn't wait for my stop to get hit, I closed out. After putting on the trades I couldn't have screen time Thursday and Friday, just tracking on my mobile best I could. Well I couldn't believe the way JPY weakened into Friday and the no news rate decision.
I couldn't do the full post-mortem Saturday, just looking on my mobile I'm sure my ignoring the 30D completely got me big time, but it wasn't ever meant to be anything other than a short term trade. I trade off the 5D derivatives, and if I was trying to pick a bottom to short, I was pretty bloody close.
I had the joy of watching all the gurus on Twitter saying stay out, keep your powder dry, avoid the pre-positioning and the market nonsense going into the BoJ rate decision and quad witching nonsense.
I pulled the plug early, saved a few bucks, about the only good decision I made in this trade.
Hence my new filter, no trades on the day before a major event for a specific currency. Don't give a damn what all my wonderful numbers tell me.
Maybe JPY just had finished its run for the time being and was due for a pullback, I don't know, I'll have to find a way to analyse that in Excel while I am learning how to code.
