The financial market is home to many trading strategies. In general, these strategies are classified as technical and fundamental analyses. To make decisions in technical trading, traders use moving averages and Bollinger Bands together.
Fundamental analysts refer to economic data, news, and other news as inputs when making decisions. Indicators used in economics include interest rates, inflation, confidence numbers, and employment numbers.
The following are a few tips for using the news when trading.
Trend following strategy
Multiple time frames are incorporated in this strategy, as well as well-defined levels of support and resistance that come into play when a release goes out.
This strategy can be used when a market price is approaching a point of support or resistance on the way up but hasn’t quite arrived yet. There is a possibility that the market will move toward the trendline after the news release.
Trading in the direction of the trendline or trading the bounce is a viable option for traders if the price respects the trendline.
This type of trade can benefit from the following four points:
- Analyze the daily chart to determine the trend direction
- Draw the lines of support and resistance
- Choose a timeframe between 1 and 4 hours for forex trading
- An excellent way to buy in an uptrend is near support, and an excellent way to sell in a downtrend is near resistance
It would be best if you use tight stops when pursuing this strategy because breaking through long standing levels of support and resistance can be challenging.
Dual spike breakout strategy
This strategy uses a five-minute chart to analyze market volatility and wait for a range to emerge before buying or selling. Historically, the US Non-Farm Payroll (NFP) release has had the most significant impact on the market. Thus this section is based on it.
Wait 15 minutes after the NFP report for three five-minute candles to close. Make a note of the price at which the third closed candle was the highest and lowest. Placing an order to go long at the highest price followed by an order to go short at the lowest price is the next step.
An order can be triggered by dividing the distance between the low and high channels in half, with targets set twice as far apart as the low and high channels, and stops above resistance or below support.
This strategy is disadvantageous because volatility can push the price above or below the short-term range, triggering a stop-loss order and immediately reversing the trade.
You can apply this strategy as follows:
- Configure the chart settings to display 5-minute charts
- Watch the first three candles for highs and lows
- Entry orders should be placed when the price breaks above or below the range
- Set stop and limit times
- Remove the unfulfilled order
News reversal strategy
An immediate reaction to major news releases usually results in the market trading in one direction before trading in the opposite direction. The news reversal strategy attempts to profit from news releases after they have been released by focusing on a sudden reversal in price after a strong move in price.
Reversals might have been triggered by algorithms or by the market as a whole believing that price had overreacted – which prompted trades in the opposite direction.
This strategy has the drawback of not reversing the price and continuing to trade in the direction of the initial spike.
The implementation of the news reversal strategy is as follows:
- The initial spike in price: New information likely to move the market generally leads to a spike in price when it is released.
- Look out for a reversal: Traders can expect the price to reverse 10 to 15 minutes after the release.
- Entry: Make your entry when the price breaks above/below pre-release levels.
- Set multiple target levels: Traders are encouraged to set multiple targets. The trader may take advantage of half of the position as it is triggered and adjust the stop on the remaining one to break even.
Bottom line
After the news has been released, you can trade the news more conservatively. Traders can plan a technical setup as the emotions surrounding the news release subside. To maintain capital in your account, you need to understand risk management and use a small amount of leverage or no leverage at all when trading news.
