Charting Economic Surprises

External question — Personal Finance Stack Exchange Author: Vanconts Original post: https://money.stackexchange.com/questions/162944 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Reading the book about FX trading called "Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves" by Kathy Lien. Can't understand the idea of Charting Economic Surprises Author says One way for traders to stay on top of economic trends is to chart economic data surprises against price action. Figure 3.2 illustrates how this can be done. The chart graphs how much an economic indicator has deviated from its consensus forecast, or the ‘‘surprise,’’ and stacks them on the same side and graphs price (blue line) action when the data was release against the surprise, with a simple regression line (white line). This can be done for all of the major currency pairs and provides a visual guide to understanding whether price action has been in line with economic fundamentals and can be used as a guide to future price action. Economic data can be found on the calendars of any major forex website, and price action can generally be downloaded from your trading platforms. Where on the chart I can see when exact data release happend? In other words how can I match the date when economic indicator has deviated from its consensus forecast and exact moment when price reacted(blue line)?

External answer — Personal Finance Stack Exchange Author: MD-Tech Original post: https://money.stackexchange.com/a/162966 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. As others have commented any method in any book should be taken with a large pinch of salt where trading is concerned. I am only going to interpret the graphs for yo u not comment on the veracity of any claims. Disclaimer over. This graphic is needlessly complicated and I'm not surprised that you need it interpreting. It is made up of 2 completely separate and basically unrelated charts. The bar chart can be ignored after this part since it only reflects the "surprise" inherent in the economic data. That is it shows how much the actual economic data differed from the economists or market expectations before it was published. Hopefully that is simple enough. The line chart is where the claims come from and it is notable that there is no time axis - the x-axis is the size of the surprise in the economic data and the y-axis is the fx rate. In context I'm guessing it is USDEUR but that is not important really. The blue line shows what the price effect was for a given size of surprise so a surprise of around -50% in an economic measure will move the price to about 1.34. It doesn't matter when the economic data comes out in this case, the important part is how much it differs from expectation and what price effect that might have. The white line is just a linear trend line as far as I can tell but without the data I couldn't tell you whether it is a "proper" regression line or a hand drawn line to show the trend. It really doesn't matter much as the point is quite clear, what is missing, however, is what the r squared term is which might tell you if this is significant. The theory is relatively sound as it happens since the expected economic data should be priced in to the market and any surprises will cause a movement as large participants move money to match their new view on the economy. I'm not sure I'd link it directly to price rather than (log) returns since the basis of the price will change between publication of economic data. I hope this is clearer - the reason that it doesn't show when the economic data is published is that it doesn't even have a time axis.