Successful news trading, how it’s possible.

Nov 21 • Between the lines • 2039 Views • Comments Off on Successful news trading, how it’s possible.

newspaper-crunchedOne of the most apt phrases in relation to news trading that has stood the test of time is; “don’t trade the news, trade the reaction to the news”. Nowhere is this more evident than on the day the NFP data (non farm payrolls) is delivered by the USA bureau of labor statistics. We’ve advised on how to trade this particular event in the past, but as a quick reminder for our newest readers here’s what we suggest…

Never try to ‘predict’ which way the market will move before the release is published as there are too many factors which could spoil your trade, even if you guess the 50:50% ‘punt’ on direction correctly. Your order may not be filled, price may spike in the opposite direction to your bet, taking your stop out before resuming in the reaction you had predicted. Similarly your stop loss and or take profit limit order may not be executed.

These events will not be as a consequence of poor practice of your broker, or your platform, they’ll be the result of millions of orders being placed into the market at the same time, through platforms such as MetaTrader4, as millions of traders try to get in or get out of the market within seconds. Despite the capabilities and technology available the overall FX system, the ‘mother ship’, simply cannot cope. Knowing this, traders should avoid trying to get in just before the news or just after, it literally is a lottery.

Our advice has remained steadfast and is based on seeing NFP day unfold over many years and recognizing that, barring the days in 2007/2009 when the financial crises were unfolding leading to mass unemployment numbers in the hundreds of thousands, the medium term trend is rarely broken. Price may reverse direction marginally (on an intraday day basis), but for the majority of the time NFP numbers do not ‘break the trend’, the trend may pause, but then continues in its previous direction.

Furthermore we advise to then let the first ten or fifteen minute candle to close (after the news event has been published) on whatever major pair/s our trader is trading and then trade in the direction of the proceeding price action. If there is an initial post news bullish 15 minute candle and it closes with an upward shadow, then our trader should go long. Short if the price action is the opposite. This is the simplest, cleanest and most effective method for retail traders to trade news events that we’ve encountered. Now the question is can this simple procedure, which works the majority of the time on NFP day, work on other high impact news events? Possibly, let us explain…


Be prepared and be patient

“It has been said, Patience is a virtue and good things come to those who wait. Do you get annoyed when things don’t happen fast enough? Do you tap your foot impatiently or keep looking at your watch when waiting in line? When we learn to accept what is, and embrace life in each present moment, our impatience often falls away.”

When other high impact news events are about to break, such as the release of the FOMC minutes, or a press conference by certain illuminates at the ECB, traders should prepare themselves in an identical fashion to how we’ve suggested in our NFP trading method, they should prepare and exercise patience.

Traders should allow the news to break, whilst having their order ticket ready to click. Our trader should place their stop below or above price, depending on their chosen direction, on the closing lowest price of the HA candle that closes immediately after the new is published. Our trader should then enter the market with the view that this trade is a short term intraday trade, were they’re looking for a modest return related to the risk. The stop will be circa 10/20 pips, the target should be either 1:1, or a ratio close to this target.

It’s important that traders recognize that this method of trading the news is not infallible. However, what out trader is doing is turning the tables in their favour by obtaining a superb opportunity to trade the strongest price action developed in the market at any one time. As the initial rush fades after the high impact news event is published, we’re clearly seeing a tremendous demonstration of the most naked price action in the market at work at any one time. Simply following the action as it develops, on the second 10/15 minute candle, can provide an excellent and simple method to harvest pips, with very little risk, during high impact news events.

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