9/15 Analysis: How to Trade the News
Today, I will show you how to trade prior to a major news announcement. I personally don’t trade on days when there are major announcements on the USD but you could potentially trade leading up to that release.
At the NY open, the EUR (pink line) is strong and turning up while the NZD (purple line) is weak and turning down.
- EUR/NZD BUY
Since these currencies weren’t showing huge momentum, you would have placed your order 10 pips away from the market and probably would have entered at the top of the opening bar (worst case scenario).
I would close this trade out 5 minutes before the news was scheduled to be released. The reason why is it’s much too dangerous to leave an order in during that announcement. As you can see by the large price bar, the news caused price to whipsaw in a 40 pip range up and down. There is no way your stop or profit target would be honored even if you had them placed. Avoid these situations!
So, if you closed it out 5 minutes prior to the news, you would have at most a 4 pip gain and realistically when you consider the spread this probably would have been a small losing trade.
First off, get used to losing if you want to become a long term trader BUT you could have avoided this loss altogether by staying out of the market on news days.
Watch the entire video analysis below:
[00:00 – 05:43]
[slide] [8 charted horiz currencies dancing all over]
Hello, I’m James Edward from CompleteCurrencyTrader.com. Welcome to today’s Currency Strength Analysis training video and, today, I’m showing you an example of a break-out trade which was taken quite close to a high-impact news release during the New York session and explaining how to handle that kind of situation.
Now, this is what the indicator looked like at the New York Open today. It’s worth noting that, today, at both the London and the New York sessions it has been a particularly quiet Market. (I, personally, with my more advanced strategy didn’t end up taking any trades at all, today, in either London or New York because it has just been one of those days that has been particularly quiet and choppy.) There were no real opportunities.
However, during the New York session at the Open there was the potential you may have taken a normal break-out trade. Now, this is what the indicator looked like and there [s/b aren’t] isn’t any immediate entry opportunities, here. You do have a couple of strong currencies that you’d have your eye on and the same goes for a few weak currencies that you’d be watching, but none of them are moving down in a continuation of that direction with any sort of steepness. Some of these weak currencies–the [orange line] AUD’s moving back up; same with the strong currencies–you’re probably looking at the [pink line] Euro (EUR). for strength. That’s not moving steeply and neither is the [red line] British Pound (GBP) down here.
You wouldn’t actually enter anything at the Open. I would suggest you use a pending order, but my advice in this situation when there isn’t anything obvious is to just wait and give the Market a few moments to come to you and show you how it is unfolding just after the Open.
Now, if I fast forward–
[slide] [new view slightly right, 8 currencies tight center left, widen immed after]
(continues) … through this by just four minutes, you’ll see a slightly-better situation where the [pink line] Euro (EUR) is now starting to turn up. It’s not a particularly steep line, so you haven’t got the extreme momentum that we ideally look for, for the highest-probability trade. But it is starting to turn up so that is [NOTE: no such word “tradeable”] trade-able and, down to the weak side, you have the [lilac line] New Zealand Dollar (NZD) which is starting to turn down. And, again, not as steep as we would like for the high-probability trade, but certainly something that you may have noticed and may have been tempted to trade, which is absolutely fine. This is four minutes after the Open.
Now, there was a high-impact news release scheduled for the [purple line] U.S. Dollar (USD) 30 minutes after the Open and I, personally, do not trade around the news because I think it’s far too dangerous and risky. But you can trade prior to that and it’s perfectly acceptable to enter trade at the Open or within the sort-of first five to ten minutes, as long as you then close it before that news hits.
If I go over to the price charts,–
[slide] [B&W price bar chart – EURNZD.MS]
(continues) … this is actually a losing trade, and that’s important for you to understand that, just because you’re using individual currency strength weakness, it doesn’t guarantee you are going to get winning trades every time. You are going to lose lots of trades. You are just entering with higher probabilities and you have to understand the difference between probability and certainty.
Now, this is [points] the Open price bar, there. This is when New York opened, at 8 A.M. New York time (ET), and you can see, from the Open, the Euro:NZD has moved up, [diagonal from init pivot on NY Open bar] in total, almost 30 pips. However, you would not have captured that. (Realistically, you wouldn’t have entered at the Open because the pattern wasn’t there. It didn’t materialize until the price bar was up here, [points] somewhere.) Potentially, you’d have entered right at the top of it. [indicates, label lists “Time 2015.09.15 12:00, Open 1.78617, High 1.78768, Low 1.78599, Close 1.78761, Vol 716″]
Let’s work on worst-case scenario.
Now, this price bar [indicates longest line nearest ctr] (here) is when the high-impact news hit for the U. S. Dollar (USD), which actually impacted the entire market, which is often the case with the U. S. Dollar (USD); which is why I don’t trade any currency pay when you have high-impact news on the U. S. Dollar (USD).
So, at the half-hour point, the price would’ve gone all the way down here and whips all the way back up here and [demos cross point] looking at, in total [draws line straight up length of long bar] of almost 40 pips. That’s 38 pips there–almost 40 pips–where the price has spiked down and immediately spiked up again, and that’s all happened within a matter of seconds. And that is precisely why I don’t trade, because that’s far too volatile. The price would gap straight past your stop-loss and you wouldn’t have your stop-loss honored. And that’s when you can take far in excess loss than you are expecting.
So, in this situation, what I would do if I know that there is high-impact news scheduled to be released is, I actually close five minutes before. So, this is [points] this is half past the hour. This [points] price bar opened at 25 past, so I’d have closed at this point, [points] here–the close of this price bar or the Open of that one. That is five minutes before the news is scheduled to be released.
So, on today, depending on where you entered and including the spread, if we work at [demos cross point] you entering at the top of this price bar when the pattern became more obvious on the indicator and then closing five minutes [diag line from pivot] before the news at this point here, you’re looking at a maximum of a four-pip gain. So, potentially, it could’ve been a winning trade, but I think, realistically, if you look at the spread on the Euro / N-Zed-D, that could’ve easily been a small, losing trade, depending on what size spreads you get with your broker. And, it [points] depends on the specific moment you would’ve closed.
But that’s the way I would play a trade near a high-impact news release. You can enter, as normal, within the first ten minutes of a new Market opening, but make sure that you have closed within at least five minutes before a high-impact news schedule. You do not want to get caught up in this kind of whip-sawing volatility.
So, that’s the way–
[slide] [prior black backed slide]
(continues) … to play a break-out trade using the simple strategy around high-impact news releases that are scheduled regularly in the market.
You can see that our Currency Strength Indicator is an effective tool for picking out the highest probability, lowest risk trade set ups while avoiding market conditions that aren’t favorable. If you keep using this tool every day along with our daily Forex analysis, you will increase your win rate and be on your way to becoming a profitable trader long term.
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