Learn to recognise new information from known information

Some of you noticed that I often comment on news with “this doesn’t change anything” or “the market won’t care about it” and so on. I understand it’s not something you generally see in the news.

But here’s the thing: the market cares about new information and not known information. The market is constantly in flux pricing and repricing future expectations based on the incoming information.

If it’s new, it has the potential to change the underlying expectations and therefore move prices, if it’s not, the market generally doesn’t react because the information is already priced in.

Such changes don’t happen that often and that’s why a trader’s biggest strength is patience. You need to sit on your hands until that new piece of information that changes expectations comes out and gives you the opportunity to extract money from it.

June was mostly a rangebound month because it lacked that new information. There were just two key events: the Israel-Iran conflict and Fed’s Bowman change in stance.

The first Israel attack against Iran was new information and the market reacted immediately with big moves as it priced a geopolitical risk premium. After that we just consolidated because the only thing the market cares about regarding the Middle East is oil supply. That’s because oil prices can have a big impact on growth and inflation.

So, we had that first move on the first Israel attack pricing in the geopolitical risk premium and the risk of slower growth and higher inflation. Then once we got the symbolic Iran’s retaliation, the market priced out the previous expectations. In 12 days, only the first and the last days mattered because those contained new information.

On the last day of the Israel-Iran conflict we also got a change in stance from Fed’s Bowman. She’s been a hawkish voter for a long time but that day she delivered some dovish comments and even opened the door for a rate cut in July if inflation were to be muted. If she had delivered the usual hawkish comments, the market wouldn’t have cared because it would have been a known information. But she completely changed her stance going from hawkish to dovish.

That’s new information and it changed expectations. Just a few days earlier, we got Fed’s Waller delivering dovish comments but he’s been a known dove since February or April (don’t remember exactly). His comments weren’t as market-moving as Bowman’s ones because it was “old news”.

Bowman’s comments triggered a selloff in the US dollar and the bearish momentum remained strong for days as the market priced in a potential third cut by year-end with some probabilities of a cut in July already.

If you recall, we had some odd rallies and selloffs on nothing throughout June but overall the price action in the USD pairs has been rangebound. After that new piece of information though, we finally got a sustained move, supported by a clear catalyst which took us to new levels.

Most traders give back money to the market in such rangebound times. Waiting for new information that changes underlying expectations is what saves from such rangebound times and increases the profits over time. Anyone can make money in the markets, but very few can keep it.

I think one of the most important things for a trader is to learn about the underlying expectations. What’s priced in and so on. This makes the job of spotting changes much easier. This requires some work though because you need to follow the daily macro developments, so you get in a state where you see where the markets are in terms of expectations.

The last thing I would add is to stop focusing on the present because the present is already in the price. Always focus on the future (6-12 months ahead). Always ask yourself how this thing could change the future? Because that’s where the market will be heading to. The NFP report tomorrow is not important per se, what’s important is how it’s going to change the Fed’s stance. The NFP is the present, how the data could impact the Fed’s judgement is the future.