5/28/2019

Trading the News

In this Webinar, you will learn

What Moves To Trade or Not Proactive Reactive

the Market to Trade Trading Trading

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What Moves the Market

It is with no doubt that news and economic data releases

moves the market

This applies to the Forex market because changes in the economic

situation directly affect the demand and supply for the currency

News releases provide fresh information on the performance of an

economy and data surprises can sharply affect the market

One of the most popular ways to trade forex is to trade economic

data and news releases

Although trading the news can be exciting, it is also very risky due
to the volatility that can be triggered by the news releases

Key Economic Releases

When trading news, first you have to know which releases are expected for the week and which are
the more important data. The most important economic events and releases are:

Central Bank Meetings CPI & PPI

(Interest Rate) (Inflation)

GDP, Trade Balance & Retail Sales Unemployment Rate & NFP
(Growth) (Labour Market)

Consumer Confidence survey Earning Releases

(Market Sentiment) (Company Profits)

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Economic Data Importance

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

It is important to stay on top of what the market is focusing

on at the moment

To Trade or Not to Trade

Traders are divided into two opposing groups whenever the question
of trading during news releases comes up

The first group believe that the news releases will affect the markets in
unexpected ways, so they will avoid trading around news releases

The second group believe that their analysis of the past market data
discounts the upcoming changes, so there is no reason to stop trading

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To Trade or Not to Trade

Whether you should continue trading through the news

releases or not, depends upon how these events
affect your trading system

If your trading system is based upon something that the

news can affect, such as the range of the most recent
candle, then perhaps it might be wise not to trade

If your trading system is based upon something more

insulated from the news, such as a price pattern that
involves several candles, you may be able to trade

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Proactive Vs Reactive Trading

Economic releases can be traded either proactively or reactively

Trading proactively involves taking a guess on whether the data will

positively or negatively affect the market and trade accordingly

Trading reactively involves placing a trade after the economic data

is released based on the real outcome

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Trading Proactively

Forecasting the upcoming data release results is not as difficult

as it may seem

To forecast Employment data, one should look at the employment

subcomponent of the PMI report

To forecast Retail Sales data, one should look at the confidence and
sales subcomponents of the PMI report

To forecast CPI data, one should look at the PPI report which
measures inflation on a wholesale level

Forecasting economic data is not easy but a Masters in Economics

is not needed either – just some common sense

Trading Reactively

Reactive trading rules out any form of prediction or anticipation

The reactive approach calls for a quick reaction from the trader
as soon as prices starts to move

To beat the crowd, reactive traders put their utmost focus on the
correct timing through applying one of many strategies

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Reactive Trading - Hedging

With the hedging strategy, traders would position

themselves on both sides of the market

This strategy consists of going both long and short at

the same level before the release of the data

Once the number comes out, the trader must close the
hedged position by taking both a profit and a loss

Favourable data
First take profit on long position, wait for a correction,
and then close the short position with a smaller loss

Unfavourable data
First take profit on short position, wait for a correction,
and then close the long position with a smaller loss

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Reactive Trading - Straddle

A variation of the “hedging” technique is the “straddle”

technique and it requires using pending orders

The trader should find the trading range on an intraday

chart and place a buy pending order above the range
and a sell pending order below the range

Buy order should have a stop loss below the range

Sell order should have a stop loss above the range

As soon as one of the pending orders is triggered, the

X trader should instantly cancel the opposing order

The stop loss order should be a 20 pips trailing stop loss

allowing an automatic trail to breakeven when
the position goes 20 pips in profit

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Reactive Trading - Post Hoc

Once the market has absorbed the news outcome, it

usually glides in one preferred direction

The trader should wait 10 to 20 minutes after the

release and then take action

The initial directional price wave is often followed by a

retracement as a result of some profit taking

After a reversal candle, the trader should open the new

position and place the stop loss below the retracement

This method does not put the trader to an emotional

drain and provides a better risk to reward ratio

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News Trading - Advantages

Almost every week there are key markets moving events that offer
potential trading opportunities for traders

Many websites offer free economic calendars that can be filtered

based on the currency and the importance of the event

News trading allows the trader to capture volatile price

movements in a short period of time

News can act as a catalyst for prices, trends may be in pause mode
and then news comes out and propels prices

It does not require a lot of screen time, 5 minutes before the news
release and 30 minutes to an hour after it

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News Trading - Disadvantages

Extensive market uncertainty around news events promotes the

spreads to widen significantly

Extreme volatility during these events can sometimes cause

significant price slippages and gaps

Stop-loss hunting is a common phenomenon associated

with news events

Sometimes news will bring just volatility and no distinct direction

Profitable as it may be, trading the news isn’t as easy as you may
Think - It will take loads of practice