The Euro/US Dollar futures chart above fully demonstrates the risk of market bias and the negative impact that it can have for day trading purposes. The chart includes 4 trading days worth of data, June 24-26 and June 29th, and the separation for the days can be seen in the vertical white lines on the chart. After the market closed on June 26th, Greek Prime Minister Alexis Tsipras called for a July 7th referendum in Greece on EU bailout proposals that he believed would cripple the country’s economy even further. Many believed that this would trigger Greece’s exit from the Euro and would have a negative impact on the currency going forward. When the futures market for the Euro reopened on the evening of June 28th, the Euro opened considerably lower as expected, and even continued to move lower for the first 5 minutes of the session. However, after that the Euro only went up for the day and actually closed higher than the previous day’s close on June 26th, which was before Tsipras even called for the referendum. Many analysts questioned how this move was logical, since in addition to this recent bearish move from Tsipras that there were also greater downward macroeconomic impacts on the Euro such as quantitative easing by the European Central Bank that was announced in the beginning of 2015 and the fact that the US Federal Reserve had been expected to raise interest rates in the later part of the year.
The key takeaway here is that markets are not obligated to “make sense” on a day to day basis; they are simply a function of traders buying and selling financial instruments. One could perhaps rationalize the move upward for the day by saying things like “the Euro would be stronger going forward without Greece” and “traders saw value in the cheaper price of the Euro and bought it.” However, to us this is simply a case of trying to make the story fit the chart, especially given some of the greater macroeconomic concerns for the Euro relative to the US Dollar. There were likely many traders that shorted the Euro when the market opened on the evening of June 28th and continued to hold the short position due to market bias, or the belief the that the Euro would eventually fall for the day given all the negative media attention coming out of Greece. Simply put, traders that shorted the Euro at the open and stubbornly held those positions throughout the day got killed because of their biased view of the market, while at the same time ignoring the technical aspects of the chart.
The great thing about all of our algorithms is that they are not impacted by market bias or outside noise from the media. Our algorithms simply open long and short positions based on the technical aspects of the movement of price on a chart, along with other proprietary indicators, thereby taking a precise, mechanical, and unemotional approach to trading. You can avoid market bias and other negative human emotions that hinder manual traders if you simply trade with Acumen.
* Please note that day trading futures contracts can result in substantial transactional costs, even if the commission charge for each trade is low. The total commissions that a Client pays will reduce its profits or add to its losses.