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Trading the news is exciting because volatility abounds when High Importance events like FOMC hit the wires. Here’s a plan for trading such events.
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TRADING AROUND THE NEWS Reference: https://www.platinumtradingacademy.com/
Index • Trading Around The News • Why I Try To Avoid Trading Around Major News Releases • Strategies For Trading Around Major News Releases
Trading Around The News • I am a fundamental trader first….then a technical trader second. • Personally, I do not place trades based on news announcements any more. • I have had many bad experiences around news announcements so I have learned to: stay away.
I am referring to “Forex Factory - RED” news events only, the minor news really doesn't concern me that much, as these events do not really move the markets. • I will give you a few reasons why I avoid trading during major news events, but I will also give you some strategies for trading around news announcements.
Firstly, let me just say that I believe that news announcements are almost totally unpredictable. • As you know from various websites such as Forex Factory there is usually a “forecast” and a “previous” number listed prior to the news announcement being made. • The market’s reaction is generally based on whether the actual announcement is higher or lower than the forecast.
The issue to bear in mind here is that this assumes that all traders (or at best most traders) react the same way to the relation between the actual number, the forecast and the previous number. • Even if we could correctly interpret this information, it is difficult to enter trades during these times because trade execution / slippage suffers within a fast moving market.
Why I Try To Avoid Trading Around Major News Releases [1] In my opinion, for what it is worth, these news releases have very few long-term implications and are unpredictable in the short term. • Of course, there will always be traders that may use these numbers at news events to various degrees of success, but I have never seen or heard of traders with strong evidence that you can profit while trading news release numbers over the longer term.
In any event, the one constant around trading major news events (such as Non-Farm payrolls) is that there are rapid moves way above the normal magnitude. • These moves can also be very erratic. • Sometimes the move is in one direction.
Sometimes the move looks like it will be in one direction, and then it moves back to the starting point just as fast. • Knee jerk reactions are commonplace on high beta news events.
[2] Furthermore, news related moves can be very irrational. • Not only do they often ignore the logic of the news announcement itself, but also these moves often ignore the logic of the technical analysis that we rely on. • It would be much easier to trade these announcements if traders were rational…but they aren’t.
Therefore to me the most useful aspect of these major news announcements is the time that they take place. • I then use the timing of these announcements to avoid placing trades right before then.
Strategies For Trading Around Major News Releases [1] Never place a new trade ahead of major news. [2] If you are already in a trade you need to decide if the trade is in a small loss or small profit position whether or not you just close the position.
You have to remember around major news events that if you have a stop in position that may only 25 pips away from the current price, and if there is huge volatility you may not get your stop filled at the price you have at your broker. • It could be filled 40 or maybe 60, 70 or 80 pips away from your price if there is a major move, and your stop order may be filled many pips away from your loss that meets with your TRADING Plan objectives. • You have to ask yourself why risk a 70 pip or whatever loss?
[3] If you are in a longer-term position you just have to ensure that your stop loss is sufficient to cope with volatility and that it still meets with your TRADING PLAN rules. [4] You may want to limit risk by reducing a trade size ahead of the news. If the news event goes in your favour you can always add back to a trade.
[5] Be prepared for the knee-jerk reaction to the news event. U.S. Non-Farm is notorious for this. • The initial move may not always be the market move and directional trend. • At Non Farm, I wait at least 10 minutes before trading the news event.
Other traders will tell you to wait 20 minutes. • Sometimes the best Non-Farm approach is NOT to trade! [6] The best advice and trading strategy around news events….DO NOT TRADE them.
