| Avoid the news? | | | | of getting both the direction and timing right during |
| Most forex traders I know use charts and technical | | | | your trades. |
| analysis to make their forex trades, and are taught | | | | 1. Look for breakout due to important news surprise. |
| by so called "gurus" to completely avoid the market | | | | Out of all the forex technical analysis methods out |
| when news comes out, and in many cases, to even | | | | there, I don't think any are as powerful as watching |
| take off trades before news. My question is, why | | | | how price reacts to weekly (or even daily) highs and |
| avoid trading during a period where price action | | | | lows. All other things equal, if price breaks a high, it's |
| actually behaves sensibly? In other words, price | | | | likely to continue going up, and vice versa for lows. |
| action actually moves due to traders' reactions to | | | | The reason why such a simple strategy as this can |
| new information about the economic state of a | | | | result in depleted accounts is because it doesn't take |
| country, rather than some pattern or price level that | | | | into account the momentum and behavior of the |
| may or may not have any predictive ability. | | | | market. If you consider that the GBP/USD traders |
| Should you trust the news in your forex trading? | | | | are reacting strongly to a surprise in the amount of |
| Save some time and watch for only the high | | | | retail sales in the UK, however, then a sustained |
| probability trading opportunities | | | | upward move beyond the break of the high looks |
| News isn't something you should avoid. News is the | | | | more likely, doesn't it? |
| only thing that you know for sure moves the | | | | 2. Trade retracement of a news spike. The easy |
| market. News has a much longer effect than just the | | | | days of waiting for a surprise in scheduled economic |
| knee jerk reaction immediately after the release and | | | | data and buying up a currency are long gone, as the |
| the next 5 minutes. The reason why news time has | | | | competition is too fierce and brokers have |
| such a bad rap among traders is that many news | | | | implemented measures to make this practically |
| events create random, whipsawing price action that | | | | impossible. However, that's not to say that we can't |
| can easily take out stops. So what does one do? | | | | get into the move after the original price spike |
| Avoid trading during and after useless news events | | | | following the release. If you keep your eye on a |
| and only stick with ones that have strong | | | | 4-hour chart and see a clear break of a recent |
| cause-effect relationships (i.e. a surprise in the | | | | channel or weekly high after a surprise in economic |
| economic data has a high probability of producing a | | | | data, wait for a retracement back down to the high |
| strong, one-directional move in a currency pair). | | | | and buy there. |
| These are: | | | | 3. Fade an "irrational" news move. I can't tell you how |
| - Interest rate announcements, statements, press | | | | many times I've seen price rocket upward 50-100 |
| conferences (including US FOMC minutes) | | | | pips after a release only to come back down to right |
| - Retail sales | | | | where it started a few hours later. Usually what |
| - Manufacturing PMI, Chicago PMI, Ivey PMI | | | | happens is one of two things. First, the deviation |
| - Inflation/CPI | | | | between the market's prediction and the actual |
| - German ZEW, IFO surveys | | | | economic number might be small (e.g. US retail sales is |
| - US Employment (Non-farm payrolls), Canadian | | | | +0.3% vs. 0.1% expected), but nevertheless enough |
| employment | | | | of a surprise to throw the market off and spur |
| 3 ways to use news in your trading | | | | buying, or second, the news release turns out to be |
| Analyzing sentiment (and thus direction) using news | | | | better than expected while in the recent past nearly |
| releases can be a very powerful element of your | | | | all releases have been negative. In these situations I |
| forex trading strategy. I'm not talking about chasing | | | | would look for a nearby technical resistance level, |
| the market after a news release- I'm talking about | | | | such as a weekly high, and short price when it gets |
| professional, calculated, profitable forex trading. Here | | | | to that level. Of course vice versa for the opposite |
| are some ways to combine forex news trading with | | | | scenario. |
| technical analysis so that you have a better chance | | | | |