How to Trade Forex after a Major News Release
Article Summary: News
trading often brings the biggest moves of the month. Because of this,
it’s no wonder that trader’s seek out high importance news events to try
and catch a big move. However, if you don’t have a solid plan for
trading the upcoming event, you’re likely better off not trading at all.
Here is a plan to make sure you’re ready when a big move comes your way.
“Don’t think about what
the market’s going to do; you have absolutely no control over that.
Think about what you’re going to do if it gets there. In particular, you
should spend no time at all thinking about those rosy scenarios in
which the market goes your way, since in those situations, there’s
nothing more for you to do. Focus instead on those things you want least
to happen and on what your response will be.” – William Eckhardt
Have you ever wondered why markets move so much
before a news release? Quite simply, it’s because of massive amount of
traders are entering or exiting based on the news release and these
traders want to do so at the price they feel is best. This causes a
relatively large move immediately following a news release.
Now, trading the news is exciting. However, it’s also risky
due to the large moves that follow a news release and because of these
moves you need to be well prepared ahead of time if you’re interested in
trading around big news events. First, it’s important to cover how to
know when a big news event is coming out.
Learn Forex: News Events Cause Forex Prices to Fluctuate Greatly
A Quick Primer on the DailyFX Economic Calendar
The DailyFX Economic Calendar
is a key tool to help make you aware of when a High Importance event is
coming out like the Federal Reserve Minutes or a Bank of Japan Rate
Decision. To find the news that will most likely move the market, you
should adjust the filter to only see High Importance events so that your
calendar isn’t flooded with news that has little probability in moving
the market. Once the filter is applied, you can begin looking for news
events on currencies that you’re trying to find good opportunities in.
Learn Forex: DailyFX Economic Calendar Can Help You Be Aware Of Market Moving Events
The Two Kinds of News Results You Should Be Aware Of
Now that you know what news events to focus on, you
should know that all news releases are not treated equal and you should
know the differences. what the expectations for the numbers are. The
expectations are important because the market has likely priced in the
expectations so that should the news release is exactly at expectations
you wouldn’t expect too large of a move. On the other hand , if news
releases and the numbers are way out side of expectations, then you will
see a massive move in which you should be prepared to trade if this
style of trading fits your risk profile.
Whether you’re trading a short-term or longer-term
strategy, you need to know how news comes out in regards to
expectations. If markets come out in line with expectations then you
will approach the set up completely differently than if the release is
completely outside of expectations.
Release In Line With Expectations: Locate Key Price Levels to Enter Into a Trade
More than likely, you will see a reaction to the
news event even if the numbers come in line. This can be because a flow
of orders comes in the moves around prices but regardless of the reason
this is your opportunity to have the market prove to you a level of
support or resistance. If price touches that important level and holds,
you can enter in a way so that your risk is still tight as the market
continues business as usual.
Learn Forex: When News Comes Out In Line, Look For a Good Entry on the Current Move
There are two simple and objective tools you can use
to find support or resistance so you can identify a high probability
entry off a news event. The first would be Pivot Prices which are objective points of support and resistance based on prior price action. The other tool would be a trendlines which is a manually drawn line connecting price points where the trend continue.
Release Outside of Expectations: Locate Breakout Levels to Enter Into a Trade
Learn Forex: Trendlines Can Help You Catch an Entry as The Next Move Unfolds
If a trendline is truly broken, retested and then
continues in the direction of the break, you have a clear trade with
tight risk. Naturally, a trend line break would most likely happen only
on high volatility caused by news coming outside of expectations. When
an entry is triggered of such a move, you can place a tight stop below
the trendline to prevent you from holding a counter trade if the trend
resumes.
Happy Trading!
Edited by Ilesanmi Ogooluwa
Contact: iogooluwa@gmail.com