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BOOK YOUR FREE STRATEGY SESSION NOW >>Do macroeconomic news actually move the market?
You might think we're always posing million-dollar questions.
But we've got the answers too.
In this case, the answer is yes. The release of macroeconomic data or mere news snippets can influence the market.
Does this mean you need to stay constantly updated before making any trading decisions?
Not if you engage in systematic trading.
That's because the data used for backtesting already takes into account how prices have historically reacted to data releases.
Still skeptical? In today's video, we'll dive deep into:
-The link between trading systems and macroeconomic news
-How our strategies have fared during non-farm payroll releases
-What influences the market more: decisions by buyers/sellers or the news?
Enjoy the video!
Do macroeconomic news move markets?
Welcome, traders, to our new video! Today, we're going to dive into macroeconomic news and explore its impact on the markets and, consequently, on our trading systems.
First things first, does macroeconomic news really move markets?
And what are these general news items that we should keep an eye at on?
One of the coaches at Unger Academy here, and in this video, we're going to discuss trading systems and macroeconomic news.
How do macroeconomic news impact trading systems?
Releases of macroeconomic data or simple market news, like tweets, for example, can influence prices and be major drivers of financial markets.
Economic indicators such as unemployment rates, inflation, GDP, and interest rates are closely monitored by traders because they offer insights into the economic health of a country or region and can affect the performance of currencies, bond yields, and other financial assets, like stocks or commodities.
Certainly, decisions on monetary policy by central banks are also crucial. For instance, when the chairman of the Federal Reserve Jerome Powell, whom many of you may know, when he makes statements about interest rates or future policy decisions, it impacts the prices of many financial assets.
As for trading systems, we can say that the data we use for our backtesting already provides us with a complete picture of how prices have historically reacted during these events.
Thus, we don't necessarily need the macroeconomic data itself, but rather a statistical overview of how our trading strategy performed during the data releases occurred in the past.
These events are typically recurrent and can be analyzed accordingly.
When macroeconomic news is irrelevant to our operations...
For example, data on U.S. inflation is released monthly, generally around mid-month, similar to the non-farm payrolls, which detail U.S. unemployment claims and are also released monthly, specifically on the first Friday of each month.
So, simplifying this, if we had a trading system that was developed over market data from the past ten years, we would have numerous instances and many cases where our strategy was active in the market during the release of macroeconomic news.
In this way, using a trading system, macroeconomic information might be somewhat redundant because it's already priced in, and typically, less useful, which is key, because trading exclusively during news releases is quite challenging with both discretionary and systematic trading approaches.
This is due to the fact that the speed and reach the market can achieve during these intense moments are very high.
Moreover, if we consider the numerous tweets from Trump a few years back, when he was president and could be soon again – who knows? - he impacted the crude oil market with his tweets, making it nearly impossible to process this type of information and then execute a trade.
Unless, of course, one knew beforehand that such a tweet was going to be made, but that would be insider trading and is considered illegal.
In any case, adding this type of information to our systems might not yield significant benefits.
Nor is it advisable, in my view, to develop a trading system that systematically enters only during the release of macroeconomic news.
Does market speed affect our operations?
As mentioned, the speed of the market can affect the proper execution of our trades and then, when we go live, make it very difficult to get good average trade values with our strategy.
Of course, there are also market anomalies or recurring inefficiencies that might be exploitable but are certainly out of reach for us retail traders.
So, it might be best to steer clear.
How do we handle macroeconomic news in systematic trading?
That said, systematic traders shouldn't completely disregard all macroeconomic news but should at least be informed about the macroeconomic events on the calendar that could disrupt the market and thus our portfolio of strategies.
Multicharts, our strategies, and the non-farm payroll data release
Now let’s check out on MultiCharts how some of our strategies have performed during the release of the non-farm payrolls, which occur every first Friday of the month and can be easily programmed.
Alright, here we are on MultiCharts. We’ve loaded two strategies, one for the S&P 500 and one for Gold, two different markets that can be influenced by the release of macroeconomic data.
Strategy analysis for S&P 500 and Gold
Then we’ve created two alternative versions of these strategies, where entries are made only on the first Friday of each month, which is the date, as we’ve mentioned, when the American unemployment data, the so-called non-farm payrolls, are released. Let’s go and have a look at the strategy for Gold.
We have an intraday breakout strategy with an average trade of about $90, roughly since 2015. An equity line that’s quite impressive, absolutely very attractive.
And, as mentioned, the average trade reaches $92 in 800 trades.
However, operating only the first Friday of each month, the average trade jumps to $356.
This may suggest that this strategy, being a trend following and therefore a breakout strategy, benefits from volatility and wide ranges, actually, managing to execute trades that could be considered of a higher quality than average.
The strategy on the S&P 500 is also a trend following intraday strategy and has an average trade of about $35 in the last 1433 operations.
While, operating only the first Friday of the month, the date of the macroeconomic employment data release, the average trade increases by over $50.
Thus, in this case, the average trade has increased from $34 to $84. Certainly, an increase that might be seen as less significant compared to the previous strategy but definitely shows that for this particular strategy, and also for the previous one discussed, the volatility and the increase in range during the release of the macroeconomic data favor an increase in the average trade of the strategy.
Obviously, don't take this information as absolute truth.
This type of testing could be applied to many strategies, and it's not guaranteed that the outcome will always be the same across all our strategies.
So, do macroeconomic news really move markets?
So, in conclusion, does macroeconomic news move markets? Well, absolutely yes.
But as we know, sometimes after a piece of positive news, for instance, markets might fall, or vice versa. This ultimately proves that it's the decisions of the buyers and sellers that drive the market, not the news itself.
However, if you're keen to learn more about systematic trading and our methods at Unger Academy, click the link in the description. There, you can watch a free presentation by Andrea Unger, get a copy of his bestselling book “The Unger Method,” or book a free strategic consultation with one of our tutors.
Don’t forget to leave your thoughts, questions, and more in the comments below. See you next time!
We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.
