How to Trade Forex after a Major News Release.
Position Trading based on technical set ups, Risk Management & Trader Psychology.
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, t rading 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.
Chart Created by Tyler Yell, CMT.
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.
Chart Created by Tyler Yell, CMT.
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: Tr endlines Can Help You Catch an Entry as The Next Move Unfolds.
Chart Created by Tyler Yell, CMT.
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.
--Written by Tyler Yell, Trading Instructor.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Upcoming Events.
Forex Economic Calendar.
Past performance is no indication of future results.
DailyFX is the news and education website of IG Group.
3 Strategies for Trading News (NFP)
Price action and Macro.
Trading news is dangerous as wild and erratic price movements can extend against the trader Traders need to be vigilant with risk management, looking to capitalize when on the right side of the move We share three different types of strategies for trading during news.
The big day is here, and the Non-Farm Payrolls report that much of the world has been waiting for will finally be unveiled tomorrow morning at 8:30AM in New York.
News announcements of this nature can take on a life of their own with the amount of interest they receive. But it’s important to note the danger and risks of trading on such events. Nobody in the world has any idea the way that NFP will print… and even if they did, there is no way of knowing exactly the way that the market will price that data.
What follows are three ways that traders can look to trade around high-importance news announcements like NFP.
But, before we get into the strategies, I’d like to stress the danger of trading in such environments. Many professionals choose to avoid trading during high-impact news announcements just because of how dangerous or erratic they can be.
If you’ve never traded during one of these events, or if you don’t feel comfortable taking on the extraneous risk that is inevitable with such a high-impact announcement, trade on the demo account or sit on the sidelines. There is absolutely no shame in having fear of a market; this is what helps keep traders alive. Bravado or machismo is absolutely worthless if you drain all of your equity. You can get a demo account completely free-of-charge.
The ‘Slingshot’ Strategy.
This strategy looks to capitalize on the mayhem that may ensue during an especially strong print. In this strategy, the trader wants to look to go into NFP with their full position(s), so that if the volatility created around the announcement may be able to push their trade deeply into profitable territory, they can look to take advantage of that.
The slingshot looks to scale out of winning positions as the trade moves in the trader’s favor, and a variety of entries or entry strategies can be used to trigger the initial position.
Support and resistance identification is a necessity before opening any positions. Traders can also take this a step further by looking to the hourly or four-hour charts to determine any trends that may exist leading into the announcement. This way, if the biases going into NFP take place after the data is released, the trader can be on the right side of the move.
Support and Resistance is so important because that’s the ‘cut point’ with which the trader can close off the position if prices are going to move too far against them. Stops for long positions can go below support, and stops for short positions can go above resistance so that if either of these levels are broken, the loss can minimized.
The Slingshot looks to capitalize from extended moves in the trader’s direction.
Prepared by James Stanley.
Traders can even incorporate a technical-trigger into the trade with an indicator like MACD like we had explained in the article, MACD as an Entry Trigger .
A key note here: Traders are advised to investigate stop distance on their positions ahead of a data announcement as heavy as NFP. Spreads can widen very quickly as market makers don’t want to take a loss on the print just as much as retail traders. When spreads widen, stops can be triggered before prices begin trending and this can be disastrous for the trader.
Imagine the scenario in which you went into NFP with a long EURUSD position carrying a 20 pip stop… If spreads widen out to 40 pips, that would trigger your stop and execute the stop order ‘at best.’ This could entail additional slippage beyond your 20 pip stop.
But, if prices then trend up 150 pips on the EURUSD you have no position remaining even though you were right in the long position.
Unfortunately, it’s impossible to know how widely spreads might spike during any given news release, NFP especially. Traders generally want to investigate a minimum stop distance of 40 pips or more, and even then quick volatility may make the position vulnerable.
This is but another reason that trading in news environments is so dangerous; but the potential rewards could be huge if the trader can find themselves on the right side of the position, and that’s what the slingshot is all about.
If the trader is able to navigate this terrain without getting a stop hit, that’s where the slingshot comes in as traders can scale out of profitable positions as prices may surge in their favor.
The News Reversal.
Trading reversals is inherently dangerous in a normal environment; but when adding in the additional risk around news announcements, it can make this type of strategy very dangerous.
Strong money and risk management is a requirement for success in these environments, because you’ll never be sure of which reversals may follow-thru.
Like the Slingshot strategy, traders want to go into the release with support and resistance levels identified. Then they wait for the news.
In the immediate period following the news announcement, the trader can watch prices to see if those longer-term support or resistance levels come into play. And if they do, the trader watches to try to get an idea as to whether or not those levels are going to hold.
The News Reversal.
Prepared by James Stanley.
Price action can be of huge help here. Traders want to see support coming in to the market at these longer-term levels before triggering a long position with a stop below support. The key here is fitting in tightly so that if the reversal doesn’t play out, the position is taken out quickly. But if that support level does hold, the trader can begin scaling out once the position starts moving in their favor in an effort to capture as much upside as possible.
The ‘Use the News’ Long-Term Strategy.
Non-Farm Payrolls can be a game changer. A big beat or miss can stop a trend dead in its tracks and create massive reversals.
But this doesn’t happen every month. In many cases, enormous volatility is created around the announcement with perhaps some slight follow-through thereafter; only to see trends resuming their previous trajectory.
This can potentially be a huge opportunity for longer-term traders to pick up or add positions at a much more favorable price than they would have otherwise been able to. Let’s look at an example for more clarity.
Let’s say that Joe is bearish on the EURUSD for whatever reason. Perhaps he’s just a really big USD bull, or maybe he’s a non-believer in the European Recovery. Whatever the reason, Joe knows he wants to get short EURUSD.
But after spending a month confined to a meager range near long-term support, Joe hasn’t had a compelling entry opportunity in the pair.
Joe can go into NFP looking to do some bargain-hunting. He can look at his longer-term chart to establish some resistance levels in which he’d like to sell if prices can make their way up there.
The next step in the process is to wait for the news to come out to see if prices can move up into this resistance zone so that Joe can enact an order.
The ‘Use the News’ Long-Term Approach.
Prepared by James Stanley.
Once price moves into resistance, Joe can begin looking to sell with a stop above the resistance zone. Traders can look at a shorter-term chart to look for price action indications of bullish or bearish reversal patterns to increase the potential effectiveness of the strategy.
--- Written by James Stanley.
James is available on Twitter JStanleyFX.
To join James Stanley’s distribution list, please click here .
Would you like to enhance your FX Education? DailyFX has recently launched DailyFX University ; which is completely free to any and all traders!
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Upcoming Events.
Forex Economic Calendar.
Past performance is no indication of future results.
DailyFX is the news and education website of IG Group.
A simple but effective strategy for trading the news.
Trading the news can be very profitable if you can correctly guess which way price is going to move. Price can often move 30 or 40 pips very quickly on big news releases, but knowing which way its going to move is very much a gamble, so most traders do not trade the news, as its just too risky, and you often get stopped out, as price moves one way, and then the other. Most traders have experienced this whipsaw effect, when price goes up then down very quickly, or down then up. So it seems no matter which way you trade, you always seem to get stopped out.
Now I look at the markets in a very different way to 95% of traders out there, and I can always see an opportunity in whatever the market throws at me. When you understand why the market moves as it does, you can profit from almost any trading scenario, and trading the news is probably one of the hardest things to make money from, if you do not understand what is happening to price. NowI am not going to go into the ins and outs of price action, and howI use it, but I would like to give you a simple but effective strategy for trading the news.
Now the problem with trading the news is stop losses. When most traders enter trades they set a stop loss. That stop loss could be anything from 10 pips to 30 pips or more if you are trading higher time frames. Now if you are trading the news on the 15 min time frame, and you set a stop loss how big should it be? 10 pips, 20 pips, 30 pips, more? Who knows? I certainly don’t, as I don’t know how big the move is going to be? So if you don’t know how big the move is going to be, how can you set a stop loss? You can set a stop loss above a recent high, or below a recent low, but a big whipsaw like the one in the screenshot will still wipe you out. So what do you do? How can you profit from a move like that? Well I am going to tell you right now.
If you think about what happens in a whipsaw, price moves up, stops out short traders, price moves down, stops out long traders. Now you know price is going up, to stop out shorts, and you know its going down to stop out longs, so this is what you can do. You can enter 2 trades, one long, one short, as close as you can to the the mid price of the move that leads up to the whipsaw. If you look a the screenshot, this would be the middle black line. You set a take profit on both trades of 10 to 15 pips to be safe. You can go for more if the news is big, and you are going to get a bigger whipsaw, an interest rate decision for example.
Now the important part is NOT to set a stop loss. Your take profit becomes the stop loss. Most traders will be trading this with a stop loss, you can trade it with a take profit instead of a stop loss. Price goes up, hits your take profit, price goes down hits your take profit. As price is hitting other traders stop losses, its hitting your take profits. But because you are trading without a stop loss, it does not matter which way price goes first, you are not going to get stopped out, you are only going to get your take profit hit.
Now there are a couple of important things you need to be aware of before you consider whether to use this type of strategy. The news release must be a high impact release, NFP, interest rate decision, FOMC etc. So you know the whipsaw is a high probability move. The market also has to be moving in a tight range before the news is released. This is VERY important. That way the stops are in easy reach of the whipsaw. If price has been going up, or going down before the release, then the whipsaw is less likely to happen. If you have the tight range that you need, you must enter as close to mid price as you can, so you are not exposed at the end of the range. If you are, your 10 or 15 pip take profit may not get hit in both directions.
Something else you can also consider to maximize your profit is to trade this strategy on multiple pairs. If the news is dollar related, you can trade all dollar pairs, if its euro related, you can trade all euro pairs etc etc. As long as you have the tight range you are looking for before the news release you can trade any pair. Trading multiple pairs will also spread your risk a little bit, just in case you do not get the whipsaw on all the pairs. As long as you get it on the majority you can still make plenty of pips, and your take profit should get hit one way or another. If you don’t get the whipsaw on every pair, just take off the other trade as close to breakeven as you can. If you are entering at mid price that should not be too hard to get.
A lot of my trading is based on market logic, and this strategy is a logical way you can trade this type of news release. I hope its been enjoyable reading, and made you think about the market a little differently. Making money from trading is all about understanding what is happening on the chart, and thinking outside of the box.
This article has been written for entertainment value only, and I do not make any recommendation to trade this strategy, or any other strategy. I do not know your trading experience, or your financial situation, and I am not qualified to give investment advice. Regards, Rob Taylor.
Guest post by professional Forex trader Rob Taylor, of tradeforexmakemoney. co. uk.
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How To Trade Forex On News Releases.
One of the great advantages of trading currencies is that the forex market is open 24 hours a day (from 5pm EST on Sunday until 4pm EST Friday). Economic data tends to be one of the most important catalysts for short-term movements in any market, but this is particularly true in the currency market, which responds not only to U. S. economic news, but also to news from around the world. With at least eight major currencies available for trading at most currency brokers and more than 17 derivatives of them, there is always some piece of economic data slated for release that traders can use to inform the positions they take. Generally, no less than seven pieces of data are released daily from the eight major currencies or countries that are most closely followed. So for those who choose to trade news, there are plenty of opportunities. Here we look at which economic news releases are released when, which are most relevant to forex (FX) traders, and how traders can act on this market-moving data.
Which Currencies Should Be Your Focus?
1. U. S. dollar (USD)
3. British pound (GBP)
4. Japanese yen (JPY)
5. Swiss franc (CHF)
6. Canadian dollar (CAD)
7. Australian dollar (AUD)
8. New Zealand dollar (NZD)
This is just a sample of some of the more liquid derivatives based on the currencies above:
As you can see from these lists, the currencies that we can easily trade span the entire globe. This means that you can handpick the currencies and economic releases to which you pay particular attention. But, as a general rule, since the U. S. dollar is on the "other side" of 90% of all currency trades, U. S. economic releases tend to have the most pronounced impact on the market.
Trading news is harder than it may sound. Not only is the reported consensus figure important, but so are the whisper number and the revisions. Also, some releases are more important than others; this can be measured in terms of both the significance of the country releasing the data and the importance of the release in relation to the other pieces of data being released at the same time.
When Are News Releases Issued?
What Are the Key Releases?
1. Interest rate decision.
5. Industrial production.
6. Business sentiment surveys.
7. Consumer confidence surveys.
8. Trade balance.
9. Manufacturing sector surveys.
Depending on the current state of the economy, the relative importance of these releases may change. For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on top of what the market is focusing on at the moment. (For more insight on these indicators, see Economic Indicators To Know .)
How Long Does the Effect Last?
According to a study by Martin D. D. Evans and Richard K. Lyons published in the Journal of International Money and Finance (2004), the market could still be absorbing or reacting to news releases hours, if not days, after they are released. The study found that the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day. The impact on order flow, on the other hand, is still very pronounced on the third day and is still observable on the fourth day.
How Do I Actually Trade News?
We mentioned earlier that trading news is harder than you might think. Why? The primary reason is volatility. You can be making the right move but end up being stopped out, or the market may simply not have the momentum to sustain the move.
Let's look at the chart in Figure 3 as an example. This chart shows activity after the same release as the one shown in Figure 2, but on a different time frame to show how difficult trading news releases can be. On November 4, 2005, the market had expected 120,000 jobs to be added to the U. S. economy, but instead only 56,000 jobs were added. This sharp disappointment led to an approximately 60-pip sell-off in the dollar against the euro in the first 25 minutes after the release. However, the dollar's upside momentum was so strong that the gains were quickly reversed, and an hour later, the EUR/USD had broken its previous low and actually hit a 1.5-year low against the dollar. Opportunities were plentiful for breakout traders, but bullish momentum in the dollar was so strong that such a bad payrolls number failed to put a sustainable dent in the currency's rally. One thing you should keep in mind is that, on the back of a good number, a strong move should also see a strong extension.
Can I Avoid Getting Hit by Volatility When Trading News?
A double one-touch option has two barrier levels. Either one of the levels must be breached prior to expiration in order for the option to become profitable and for the buyer to receive the payout. If neither barrier level is breached prior to expiration, the option expires worthless. A double one-touch option is the perfect option to trade for news releases because it is a pure non-directional breakout play. As long as the barrier level is breached - even if the price reverses course later - the payout is made.
A one-touch option only has one barrier level, which generally makes it slightly less expensive than a double one-touch option. The same criterion holds - the payout is only made if the barrier is breached prior to expiration. This is a good option to buy if you actually have a view on whether the number will be stronger or weaker than the market's consensus forecast.
A double no-touch option is the exact opposite of a double one-touch option. There are two barrier levels, but in this case, neither barrier level can be breached before expiration - otherwise the option payout is not made. This option is great for news traders who think that the economic release will not cause a pronounced breakout in the currency pair and that it will continue to range trade.
FX SPOT options are a viable alternative for those who do not care to get whipsawed in the markets by undue volatility before they actually see the spot price move in their desired direction.
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