Ben Warwick’s “Event Trading” Keys In On News
Keywords: forex,currency,trading,exchange,business,money,personal,finance,profit,dollar
While many traders focus either on technicals or fundamentals as they develop their trading strategies, trader Ben Warwick focuses on a market’s reaction to news. Warwick has developed his own method of trading, which he calls it “event trading.”
Warwick first gained exposure to the financial markets during his days as a student at the University of North Carolina, where he earned an M.B.A.
In the course of his studies, he learned about the “earnings surprise studies” done back in the 1970s regarding the stock market. The basic thrust behind these studies is that “when a stock’s earnings came out and it was much greater than anticipated, the stock had a tendency to trend for 60 days,” Warwick explained.
“There are still fund managers today who trade on earnings surprises,” Warwick noted. “I wanted to take that idea and see if you could do this with the futures markets,” he said. Over the past six years, Warwick has been refining his “event trading” method and recently published a book under that title.
While this may sound like a discretionary type of trading, Warwick has distilled his method into a system. “I try to make it as systematic as possible and take away as much emotion as possible.”
Event trading is “nonlinear-it is not a trend-following system,” Warwick said. “It only looks at the speed with which a market responds to information … I look at the way a market reacts to news,” he explained.
An example of event trading would be the monthly employment release by the Labor department and its impact on the bond market. “If the market rallies on the number and by the end of the day it closes in the upper 20% of its range, I take that as a buy signed,” Warwick said. However, the settlement price is crucial. “Getting in immediately after the number is a 50-50 game,” he said.
For example, “you may get a bearish reaction to a number that you think may be bullish and you still might get a sell signal … I concentrate on how the market reacts to that bit of information,” he said. A fundamentally bullish employment report that pops prices higher intraday, but then sees a settlement in the lower 20% of the range would be viewed as a sell signal for Warwick.
In terms of time frame, Warwick doesn’t conduct any intraday trading. On average, Ws trades last from one to five days.
Through his research, Warwick has honed in on the most effective and influential reports in certain markets for his event trading. In the current “late-stage expansion” of the economy, Warwick points to the durable goods orders data and the employment report as the two most effective reports via event trading for the bond market.
However, Warwick tends to favor the agricultural complex-the grains and the livestock markets. “I’ve had a lot of good success in the agriculturals,” Warwick noted.
Based on his studies of the livestock markets and their reactions to the monthly Cattle-on-Feed report, Warwick said, “If you are in a strong uptrend in the cattle market and if you have a bearish Cattle on Feed report, it is much better to buy on a retracement dip,” he said. “It takes three, four or five bearish Cattle on Feed reports to turn a bull (cattle) trend around,” Warwick noted.
“It takes awhile for the cattle market to absorb information,” Warwick added. When asked what it takes for a futures trader to succeed, Warwick replied, “You’ve got to do your homework and you’ve got to do your statistics and make sure you’ve identified an inefficiency.”
“In order to make money consistently, you have to have an edge and you have to find a way to find inefficiencies that you can make money off of–that’s the key,” Warwick concluded.
Martin Chandra (martinchandra.com) is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to martinchandra.com
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