Why Does ‘The First Time’ Matter For Futures Traders When Trading The News?

Covid vaccine

The first time something happens is often a chance to learn about what that means and how to react in future, however when it comes to trading the first matters because this is typically when the greatest reaction occurs. The obvious example, and a principle taught early in any futures trader training, is that the best reaction to a level is the first time it is tested. This makes sense as new opinions are taken on the test of a level and this information is then priced into the market by way of positions being held, a subsequent test is then a chance to adapt views (positions) rather than the first taking of positions. This principle doesn’t just apply to levels and technical references but also narrative and news developments – none have been more clearly illustrated than the reaction to the, wonderful news of a Covid-19 vaccine.

How To Trade The News

Trading news is not about predicting what the next new development is going to be but instead having a clear plan for how you are going to react to various scenarios. What market(s) will you trade? How important is the news? What scope of movement does your chosen market have? It is very important to note that these scenarios and trading decisions relate to the immediate response of markets to a new development, not a consideration for the long term implication the news.

When considering the Covid-19 vaccine story and planning potential trades, the obvious first choice would be equity markets – they were severely impacted by the original outbreak and provide a direct expression of economic recovery as companies can get back to trading again. Secondly, buying Oil comes to mind – demand increases as travel and freight come back. After these two would come risk on plays – selling Gold or Bonds. Currencies provide a very difficult trade as this is beneficial globally so hard to say which currency should outperform another when it is positive for all. So with these plans in place how did the news trade?

Trading the Pfizer Covid-19 Vaccine News

The initial move on the announcement of the Pfizer vaccine having an efficacy of 90% in 3rd phase trials produced moves the like had not been seen since March and this is where having a plan counted; as can been seen below 400 ticks could have been taken in Gold and S&P 500 futures whilst Bund fell 90 ticks and Oil rallied 150 ticks in 4 minutes.

Pfizer Vaccine
First Reactions to Pfizer Vaccine

Understanding the technical landscape counted too – Oil produced by far the fastest move to its first extreme and this is was down to having a block to trade through. This was identified as a potential fast move on the Axia Morning Briefing streamed live to our members the morning of the announcement.

WTI Oil Reaction to Pfizer Vaccine

Lessons From Trading The News

Whilst the highlight of the day was obviously trading the news, lessons have to be learnt to be factored into future developments to the vaccine story. So how could the news be improved? The Pfizer vaccine had 90% efficacy however had to be stored at -70 degrees and had only a 3-5 day shelf life in a fridge after that, making transport and administering the vaccine difficult. From a trading perspective, the markets that exhibited the largest continuation moves after the immediate reaction were Bonds and Gold whilst equities didn’t continue – this is due to sector rotation out tech stocks that had performed well during the lock-downs ad into the down-trodden stocks set to benefit most (think airlines, energy and retail). In fact, Nasdaq fell dramatically after the Pfizer announcement. The long learnt lesson from any sequence of news stories is that the first major change in the story (a vaccine, in this case) causes the biggest reaction.

Trading The Next News Development

The Moderna Vaccine is arguably a much better solution: 94.9% efficacy and can be stored in a refrigerator for approximately 30 days so solves the logistical issues of the Pfizer vaccine, but this is now a further development of the story and not ‘game-changing.’ Positions taken and held on the first news will not likely be added to in the same size as when the original story broke. And this is the crucial point, whilst a better recognition of best markets to trade has been learnt, expectation must be managed – trade Gold and Bonds but don’t expect the same size reaction as before and trade equities but expect a choppy reaction as the sector rotation muted upside on the positive news/risk-on basis. As can be seen no markets continued it moves and the initial moves, whilst still not small paled in comparison to the Pfizer story.

MOderna vaccine
Moderna Vaccine ‘muted reactions’

Learning From The Best News Traders

Fortunately at Axia we have some of the best news traders in the business, capable of making in excess of $1,000,000 on a news based trade, meaning that the lesson a above don’t have to be learnt the hard way but instead can be learnt from collaboration on our London Trading Floor and specific news based trading process are taught extensively in our 6-Week Career Course and Central Bank Trading Course. To inspire you trading your next news event:

$1,000,000 Day


What do you think?

Written by Richard Bailey

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