News Trading

News announcements generate some of the best trading opportunities that exist in the markets. This style of trading has one distinct advantage over other styles of day trading and that is from a time management point of view. A news strategy allows you to pick exactly when you want to trade, you could pick just the very major announcements and just trade 5 or 6 times a month and potentially make quite a substantial income.

Some of these that I consider being brilliant opportunities are:

• NFP – Non Farm Payrolls
• Cash Rate
• CPI – Consumer Price Index
• Trade Balance
• GDP – Gross Domestic Product
• Retail Sales
• New Home Sales

This is not a comprehensive list, and each country has different announcements that can affect its currency.  We only trade the US announcements and only trade the eur/usd or gbp/usd on these types of trades. NewsScraper.com has a good comprehensive calendar here that will give you all the announcements for the week and rates them as high, medium and low impact announcements.

Working out just how much of a surprise of News Announcements is the only genuine challenge with this trading and requires a bit of homework to determine what would be a minimum surprise for you to take a trade.

For all examples in this article we will use the NFP announcement is the best of the best for news trading announcements.  We look to see a change of a minimum 80k in the number for me to even take a trade, anything less and that’s it I just turn off my computer and call it a day.  I recommend you all do your own back testing and armed with that knowledge you can choose at what level you feel you are comfortable the odds favor a decent move.

We’re working on the principle that when there is a significant surprise and as an example that it is positive for the currency, I am only interested in trading in that direction, this is paramount and trading the other way is next akin to trading against the trend.  This is a distinct advantage as well now know which direction we will trade and now just need to find an optimum entry point, stop loss and profit target.

We should rarely trade the breakout of the number as unless you have access to an exceptional broker the odds of getting filled are not good.  You can place a trade and get filled 50 pips later only to watch the price retrace and take out your stop, I am yet to find a broker that can get a decent fill in these scenarios.  There is one exception to this rule, and that is when I witness a huge spike in price in the opposite direction to what I expected. This to me is like waving a red flag at a bull, when I witness this price action it is time to load the boat.  I will go to my maximum level of risk on this trade as the rewards can be exceptional.

Why do these spikes happen? 

This is the market makers and banks targeting stops before taking the market in the right direction.  I see these situations all the time and they are false breakouts, these banks and market makers have the luxury of seeing exactly where all the orders are and if they are within their reach, they will drive price in that direction, take out all the stops and then drive it back the other way and thus literally double dipping and accumulating more profits for themselves. I don’t have access to these orders but just by understanding what is happening I can capitalize on this situation and literally ride on their shirttails.

Our goal in this situation is I want to wait for the price to have its first run then when it pulls back I look for an entry to get in on the retrace.  This for me is discretionary and I have several things I look for to enter a position. I use a combination of candlestick patterns, oscillators, a moving average, Fibonacci retracements, support and resistance and the count back.

Depending on the type of announcement depends on how large a move price will initially take.  For the NFP when the numbers meet my criteria I expect to see an initial move of between 50-90 pips.  It is possible to capture some of this move but it is definitely not the easy money, for this trade I am only after the easy money and this is a matter of waiting until all the players have cast their vote.   We know the direction and are then awaiting a pull back in price for an entry opportunity to present itself.

The entry is then a matter of getting aboard the move once price has retraced.  Establish your own entry criteria but what we are looking for is a reversal or a rejection of a price level, this could be as simple as a pin bar at the 50% fib level or any signal that meets your own personal criteria.

STOPS – When Trading the News

To establish a stop position for this trade is very easy for me as trading these compact time frames I am trying to keep my risk small and position size appropriately as large as I can under my risk parameters.  I place my stop a few pips below the low of the reversal point I have identified as my entry.

Profit Targets

Setting profit targets is of major importance to the success of any trading strategy and challenging for most new traders.  There is always the challenge of how to identify when to exit a position.  For most it is a matter of finding a balance between protecting profits on the table and exiting too early in the move and leaving a large percentage of the profits on the table.

This process for me is simple and easy as I use three indicators to identify when to exit a position or at least take partial profits.  The indicators I use are support and resistance, recent swing highs and lows and the ADR or Average Daily Range.

To Summarize the process should be like this:

• Just before News is released, asses where the profit targets are
• What is the high for the day?
• What is the low for the day?
• What is the ADR for the currency pair?
• What are the most recent swing highs and swing lows?
• Project profit targets using the ADR

Once the figures are released we then assess them and find out:

1.  whether they meet our trade criteria. This is a simple yes we are trading today as the figures are within our guidelines or no they don’t meet our criteria so no trade.
2. If the figures meet our guidelines it is then just a matter of observing price action and identifying the first significant retracement in price.
3. We then take a position using our entry rules.
4. Place the stop just beyond the high or low of the retracement.
5. Since we have already calculated our profit targets its is then just a matter of observing price and taking profits appropriately.

This is my News Trading in its simplest form and if this is not completely clear, don’t panic as there will be plenty of follow-up articles.  I am also making videos of trading examples which will make the entire process much clearer.  I will post the links to other articles in this post as I produce them.