Trading, in any market, is about taking risk on board. Successful trading, however, is about respecting that risk and managing it accordingly, and a large part of that management is being aware of when risk could be out of your control. On Wednesday of this week, when the EIA released their weekly inventory report, the WTI futures market demonstrated why data release points are one of those times.
When I was working in foreign exchange dealing rooms we were subject to very few hard and fast rules, but squaring up in front of major figures such as the U.S. jobs report or CPI numbers was one of the few things mandated. It was recognized that you really had no better idea than anybody else what the numbers would actually be, making any trade in front of them a pure coin flip type of gamble, but there were also other, more powerful reasons not to take a position into a release.
It is quite possible that if you do so you could be completely right in your guess, but still end up losing a significant amount of money. That is what would have happened to me on Wednesday if I didn’t follow that one basic rule. I suspected, based on the last few reports, that the inventory number would be a bad one for oil prices and said as much to the Energy Trader Team Members. I also, however, cautioned against acting on that belief, and I am glad that I did.
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The above chart shows what happened after the release. Oil futures surged on the initial…