 So calculating news data deviation to trade the unexpected now Conventional news trading is not an edge and what I mean by Conventional news trading is if you're buying when there's positive news and selling when there's negative news That is not an edge and that's that's what I would call conventional news trading In case you don't know Trading is a zero-sum game forex trading is definitely a zero-sum game for someone to win someone else has to lose and If the news comes out positive and everybody's buying You know, maybe 20 years ago that may have worked and that's how traders made their money but in today's markets that is just not a trading edge and I'm gonna show you how to have a trading edge by calculating news data deviation, right and Again, just a reminder Not to trade every news Data release or high-impact news data release. What we want to do is gauge sentiment, right and potential forecasts from big publications and also obviously establish the theme around What the market is potentially focused on so When you're doing a Google search, right there is a news tab. So when you first log on to Google You probably start off with all do a search on England Bank of England interest rate hike, right? And it normally starts off from all What you want to do is go to the news tab and Then if you go to tools and then you can have it basically come up with all of the the news regarding obviously the search and the tools You can sort by all the news recent the most within the past hour 24 hours, etc. Right and sought by relevance But the point in this exercise is to gauge a little bit of sentiment as to what is happening now Doing an interest a search on whether the Bank of England are gonna hike interest rates You can see the headlines right so the headlines Would be something like Bank of England policy makers split on rate hike You've got Bank of England expected. This is by spy city a.m. Bank of England expected to keep path clear for may rate raise and then you've got Bank of England holds Rates but split votes set the stage for May and it sounds looks like it's a interest rate hike and again Bank votes it hints at interest rate Rise, right? So you're getting some some headlines from big Publications like the Guardian telegraph C a m c n b c b b c news Right that there is a potential interest rate hike on the way, right? We're in March talking a little and they're talking about May so With that being said We've established that they could potentially be a interest rate hike now. What we want to do is Really establish Deviation now we're not going to do deviation on interest rate hike but what we are going to calculate is just news deviation on a Potentially any news event and you can use this on any news event but again if you want to increase your chances of a really good trade and for the news to really react When you're trading the news you want to establish a theme This is just for as an example of why you should be of how to really search You know sentiment and theme and themes on Using Google so let's get into how to calculate Deviation to trade the unexpected so before we get into Calculating deviation first of all we need to understand what is deviation so Deviation as described The definition is the amount by which a single measurement differs from a fixed value Such as the mean right so the mean or the average, right now if you don't understand that the best way to kind of Describe it is to really just visualize it right so the amount by which a single measurement differs from a fixed value such as the mean so if we go to the trading economics website We have The non-farm payrolls and this is on under forecast right and this average Would be considered the mean right this this line this dotted line right now the deviation Would be even though the description says a single measurement what we're looking for is a two measurements a high and a low right so the Deviation really is just the deviation from the mean so how high and how low right away from the mean right is what we would describe as Deviation right so it's kind of like Bollinger bands if you know what Bollinger bands are Where you have I can calculate one standard deviation to standard deviations etc, right? but what we need to calculate first is is we need to Find an average and then what we're going to do is define the deviation High and the deviation low right and this basically will Allow us to really trade news events where What we're trying to do really is We're trying to get to trade the news when it comes out and news data That has the most impacts that are close to the deviation We are and if especially if it goes past deviation the higher the impact or the more the impact It should have as far as the news right on the market right because if we're if if we're forecasting Right and this is the average and then prices Let's say for example non-farm payrolls comes out and it's around the average Even though it might be slightly positive or slightly negative. It's still around the average what we're looking for is for really price to be to when it you know to in order to trade the news and to have a really You know for the market to really kind of be made potentially wrong-footed is For there to be a forecast of the news right and it might stay within the average But then the actual date of release comes out and it's either way above the deviation Way below us our standard average right and that gives us a great trading opportunity It's not just non-farm payrolls. This method can be used for pretty much any News events so first of all what we need to do is just calculate the average so the average figure we're trying to calculate is really the average difference between the forecasted data past forecasted data and actual data, right and From there once we can calculate the average difference between forecasted data and actual data we can then Calculate our deviation high and our deviation low So let's get into calculating the the average difference between the forecasted data and the actual data So first we need to go to our forecasted number and for this example We're still going to continue on with the example of the non-farm employment change and our forecasted number is 190k now We can use a news aggregate aggregate site any news aggregate aggregate site Sorry, it's useful as long as it has accurate data forex factory is the one I'm using for this example, right? So the next thing we want to do is go to detail if you're using forex factory and If you click on the folder, it will give you the history I've obviously unpacked this already. I've pressed in it already, but If you do click on the for example the one above average hourly earnings you can click on this It will give you the history, right? But I've already done it for the Non-farm employment change now the third thing we need to do is to calculate the difference between the actual data results and the past forecasted data for each month for the past, you know, nine to twelve months, right? And a Negative or positive figure is not relevant So what I mean by that is and I've done this already on the left-hand side is we're trying to calculate a difference between For each month for the past nine months the difference between the actual in March and the forecasted in March And the difference between the actual and the forecasted was a hundred and eight K the difference between 200 K and 181 K was 19 K in February and so on and so forth. All right, so just the difference between the actual and the forecasted so You do that for I did that for nine months and Then what we do is we're gonna add Together each of these obtained of these obtained figures and divide the total number to get the average difference figure All right, so we're adding all of these numbers for the past nine months and Then we're gonna divide it by the number of months and Then we get our 51 K. So that's the average Difference figure right between what has been Forecasted and what is actually come out now by calculating that this allows us to Create our deviation high and low right because what the forecasts are telling us is what the economists how how wrong Or right as an average the the economists are Regarding and the data crunches are Around you know when they actually forecast them when they're actually forecasting the news, right? So at an extreme end All right, they will be 51 K Eva wrong either to the upside or to the downside and that's how we get our deviations. So our 51 K So let's go back. Sorry. So go back to the current forecasted news event, which is a hundred and ninety K And add the average difference figure of 51 K to the current forecasted data to get the deviation high and Then subtract the average difference figure from the current forecasted news release to get the deviation low So again, this is what we've just done if we look at it visually so we've got our news release of a hundred and 90 K We've calculated 51 K to be the average difference figure Over the past nine months. All right, so this is where economists tend to be Right or wrong or the deviation between the numbers And what is forecasted and what is actually the data that's actually come out, right? So at the extreme end If we add 51 K, we get two four one and that's our deviation high and that a low end We've got a hundred and thirty nine K Right, and that's our Deviation low now this is What we're basically looking for is for The news to come out and be somewhere around the deviation high or the deviation low now the closer To the high or the low or if it goes beyond the specific goes beyond the high and the low What we're anticipating really is is is that is the market to react right is the really the market to Have more of an impact the closer it is and further beyond it goes the deviation high or Low because what is being factored in? If I get my tool again, right? If you get our high our low and this is our average what is being factored in is The previous number and this is if we have let's say for example the chart this is supposed to be negative and Prices have been trending down This is a by the rumors are the fact potentially or the market is factoring in and pricing in this 190 K right or an average of their abouts Right, they're factored in maybe 10 K 20 K You know plus or minus now obviously our deviation over the past 9 to 12 months or 9 months in this case is 51 K, right? So if The figures that are released are anywhere close to this Number or even especially beyond this is what we really want to see is if it's beyond that number of is beyond the higher the load deviation that should have an Much bigger increase in The movement right because these economists that do the forecasts and these data crunches that do the forecasts Are have been, you know, basically wrong not only wrong-footed, but you know severely wrong-footed Right from the average. So this is what we're We're doing and this is how really you should look to trade every News event and this is one of the reasons why when the data release comes out positive Let's say for example that came out, you know, 195 right, yes on Forex factory you will see, you know a green, you know figure or red figure Right and then people kind of automatically come out and say they press buy or they press sell. Yeah, and And what happens is is the market is, you know, it's already factored in the fact that you know Maybe 5k isn't outside of you know, the normal. All right, no number these numbers aren't perfect But we know that if it's outside over even close to 51k for example in this example Then we know that we potentially have a Higher chance or the impact of that number is more over the extreme end Right and there should be some market movement, right? So this Gets you into a trade, but it also keeps you potentially keeps you out of trades as well If you have any questions just email me at info at trading 180.com