How can market expectations be measured and indicators forecast?

How an indicator reacts to changing environmental influences, how it reacts in the wake of its own rise or fall and which changes are plausible in which environment depends on various components of the indicator.

For example, the ifo Business Climate Index - a leading indicator for the European economy - is based on the monthly survey of about 7,000 companies and is thus broadly based on the one hand, but susceptible to (human) perception distortions on the other. The ZEW indicator is based on opinions of financial experts and is thus on the one hand characterised by a sectoral view of all things, but on the other hand always good for surprises.

But how can the "expectations of the market" be measured?

"The market" consists not only, but to a significant extent, of professional market participants. Therefore, surveys among analysts and economists are definitely a helpful indicator for the general market assessment. Sentiment indicators such as the Sentix can also be helpful in news trading. The Sentix is based on surveys of market developments among investors and can provide indications that expectations are developing differently from reality.

What news is relevant?

For news trading, all news is relevant that can be expected with a certain probability to cause a market reaction, can be planned in terms of time and can be matched with market expectations. News that occurs suddenly, on the other hand, is hardly suitable for the strategies because there is no longer sufficient reaction time available.

The choices are therefore:

• Annual general meetings/financial press conferences of public companies
• Economic indicators of almost any kind
• Publications by central banks
• Rating agencies
• Statistical offices 

It would go too far here to present even a part of the news in detail. A comparison of earlier economic dates with the price development at the corresponding time quickly reveals which publications have moved the market - in the truest sense of the word.

Long-term and short-term strategies

Most strategic approaches to news trading are short-term in nature. Traders try to trade the market impulse that arises as a result of a release. Depending on the strategy, the focus can be on the greatest possible price gain or the highest possible hit rate.

In order to trade an expected movement on as large a scale as possible, a position can be opened in advance of the publication of a news item. This requires a clear idea of the market reaction. Alternatively, a stop-buy or stop-sell order can be placed above and below the current market price. In doing so, an appropriate distance to the market price must be maintained so that the orders are not triggered by impulse-free market movements.

In the latter case, the behaviour of the broker (especially if it is a market maker like download mt5) must be taken into account: Spreads are often widened in the immediate temporal environment of market-relevant news.

Traders should also be aware of a very specific risk: Sometimes the market rises briefly directly after the publication, only to fall again and vice versa. In this case, one of the two positions leads to a loss.

Long-term strategies in connection with news trading include, for example, buying shares that are briefly undervalued by news. This is typically the case when an event hits a company hard in the short term, but has less or no impact on business development in the long term. Examples of this are, for example, strikes at parcel services or airlines.