Finding Trading Opportunities Beyond What Markets Already Price

Summary

The document frames a central challenge in strategy research: a plausible market view may already be reflected in prices, leaving little edge in simply predicting an anticipated event. It uses expectations around a possible central bank rate cut and the one-year swap rate to illustrate the difference between expecting an event and forecasting how prices will respond once that event is known. The question is how to identify information or market behavior that is not already incorporated into prices.

This is a conceptual prompt rather than a proposed trading method. It offers no data, test, indicators, or framework for measuring market expectations or finding mispricing, and it gives no evidence that a particular opportunity exists. The example also leaves open the distinction between an event's expected outcome and surprises in its timing, magnitude, or consequences. Researchers would need additional analysis to turn the question into a testable strategy and account for uncertainty and trading costs.

Key ideas

• A widely anticipated event may already be reflected in market prices.
• A directional view alone does not show that a trade has positive expected value.
• Price response can depend on how realized events compare with expectations.
• The document poses the problem but provides no method for identifying unpriced information.
• Any candidate opportunity would need empirical testing and consideration of trading costs.

Tags

# What is not priced in - Trading Strategies


# What is not priced in - Trading Strategies












When it comes to trading strategies I get the feeling that whenever I read about a strategy in a book or when I have view, all of that is already priced in and does not make a case for a good trading strategy.

Example: Before a Fed meeting, say markets expect a rate cut. I would have naively assumed that the 1Y swap rate for example going down. However it turns out that this is already priced in, which renders where the rate is going after the Fed meeting hard to predict. Or in general, I whenever I think something will drive the priced, I also think but wait this is priced in.

My question is, what is not priced in yet, or how to find the thing that is not priced in?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.