The clock ticks over to 13:30 UK time, a major US data release hits the wires and prices jump. The temptation is to jump with them. It is one of the most common mistakes traders make, and one of the most expensive. The first move after big economic data is often unreliable, and understanding why can save you a great deal of frustration.
Why the first move is so unreliable
In the first seconds after a release, trading is dominated by computer algorithms that react to the headline number. They compare it with the forecast and buy or sell almost instantly. The problem is that the headline rarely gives the whole story.
Take an inflation report. The headline figure might be higher than expected, sending the dollar up. But within minutes, traders look at the details: the core measure, revisions to previous months and which categories drove the change. If those details point the other way, the initial move can reverse completely. Our guide to how PPI surprises reprice rate expectations shows how much the detail matters.
Liquidity disappears at the worst moment
Just before a big release, many market makers pull their orders to avoid being caught out. That means fewer buyers and sellers, so prices can jump much further than usual on small amounts of trading. Spreads, the gap between buying and selling prices, widen sharply.
If you place a market order in those first seconds, you may be filled at a much worse price than you expected. A stop loss can also be triggered at a far worse level than where it was set, a problem known as slippage.
The whipsaw effect
A classic pattern is the whipsaw: prices spike one way, then reverse sharply, then sometimes reverse again. Traders who chased the first move get stopped out, and those who then switch sides can be caught by the next turn. It is a quick way to lose money on a trade that might have worked had you simply waited.
A calmer approach
The most practical fix is patience. Many experienced traders wait at least five to fifteen minutes after a major release before acting, letting the details be digested and liquidity return. Some wait for the first candle on a 15-minute or hourly chart to close before making a decision.
Preparation matters too. Before the release, know what is forecast and decide what result would genuinely change your view. Our explainer on consensus estimates covers how forecasts are formed. Think about scenarios: if the figure is hot, what would you expect to happen to yields, the dollar and shares? If it is cool, what then?
Finally, manage risk around the event. Reduce your position size if you are already in a trade, or consider whether you need to be in the market at all during the release. Remember that guaranteed stops, where available, can protect against slippage but often come at a cost.
When the first move does matter
None of this means the first move is always wrong. When a release is a genuine shock, far away from forecasts and confirmed by the details, the initial direction can hold and develop into a trend. The skill is in waiting long enough to tell the difference between a genuine shift and a knee-jerk reaction.
A beginner’s takeaway
The first move after economic data is driven by algorithms, thin liquidity and headline numbers, so it is often misleading. Prepare in advance, wait for the details and for liquidity to return, and keep your risk small around big releases. Patience rarely costs you much; chasing the first spike often does.
If you want to find out whether habits like chasing are holding back your results, take our free Trader Assessment and get a clear picture of where to improve.
