Preparing for the Known

 While the timing of elections, meetings of the FMOC or European
Central Bank, releases of government reports, and other such events
are known in advance to traders, these events or announcements often
produce market reactions that are not widely expected. However, these
are situations for which traders can prepare with sound trading strategies
that minimize the risk of being caught off guard. There are a few
general points that should be made about these fundamental factors.

• First, when a government releases an economic report, most
of the numbers are estimates based on other estimates. Yes,
the estimates are tabulated by experienced officials who
have access to extensive data, but they generally are not
precise counts. Nevertheless, these are numbers that all
traders have, and the market has to live with them.


• Second, when traders react to the numbers or results, they
may actually be responding to what the market expected
rather than the numbers themselves. A report that might
seem bullish may instead send prices sharply lower. All
traders know the market axiom, “Buy the rumor, sell the
fact.” In some cases, bullish numbers may not be bullish
enough to drive the market higher, or bad news may not
be as bad as expected, and prices actually go up instead.
In addition to being aware of the date and time of a report
or announcement, traders should also have an idea about
what the market expects so they can reduce their chances
of being surprised and hurt by subsequent price action.


• Third, an outcome or number that may be bullish at one
point in time may not be bullish at another time. Perhaps
traders have become conditioned to the contents of a
report and do not react as expected. Old news is old news,
and markets usually require something new to spark a
price move.

• Fourth, traders’ analyses may be correct, but they may be
too far ahead of what the market is “thinking,” so traders
may be positioned way before the market is ready to move.
The fundamental numbers may be just what they anticipated,
but the timing of a price move is off because it takes
time for traders to digest what they have seen.