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The Best Strategy For News Trading

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  1. 19.NewsTradingStrategy 19.1WhatIsNewsTrading Newscanbearecenteconomicormonetaryevent,meeting or decision such as interest rate of central banks, unemploymentrateoreconomicgrowththatdependsonits importancehassomeeffectsonworldwidecurrencies.For example,releaseofunemploymentrateinUKwillhavean effect on GBP/USD. Important news may cause a sharp 50-200pipsmoveinacurrencypair.Thebiggestpartofthis movehappensintheveryearly5-30minutesafternews release and the correspondent currency becomes very volatile(jumpsupanddownveryquickly)inthistime.Just because of this high volatility trading news can be challengingandtroublesome. YoucanfindalltheForexnewsinForexcalendars.Belowyou seesomeofthebestForexcalendarwebsites. http://www.forexfactory.com/calendar.php http://www.investopedia.com/forex/calendar/ http://www.fxstreet.com/fundamental/economic-calendar/ http://www.dukascopy.com/swiss/english/marketwatch/ calendars/eccalendar/ http://www.currencynewstrading.com/calendar/ Incalendarswecanseethreecolumns:actual,forecastand previous.Forecastasitsnameshows,isaforecastaboutthe figureoftheeconomicfactorthatistobereleased. 58

  2. Andtheactual,istherealfigurewhichisreleasedatthe newstime.Iftheactualfigureisbetter(betterisrelative,for example a lower unemployment rate is better but lower economic growth is worse) than forecast, then the correspondingcurrencywillgoesupandifitisworsethan forecastitwilldrop. 19.2HowtoDoNewsTrading Tradingnewsisaquitecontroversialcase.Ifyousearchthe webfortherelatedarticlesyouwillfacewithhundredsof prosandconsaboutthissubject,bothofthemhavetheir reasons.Amongthem,theextremistopponentsstrictlywarn andpreventyoutotradenewsandthesupportersurgeyou todoit.However,Ihavemyownapproachtothiscaseand againhaverecruitedmathtosolvethisenigma. IdidastatisticalresearchonForexchartstofigureoutthe behavioroftheprice(majorpairs)duringthenewsrelease. Belowisthesummaryofmyfindings: A.In50%ofthetimes(whatevertheactualandforecast figuresare),therelevantcurrencypairdonotsignificantly reacttothenews(mostlylowormediumimpactandseldom highimpactnews)atall(exceptforlowrangehystericmoves duringthefirstminutes)andthepricetakesitsmaincourse respectingthedynamicsoftheprice(trends,patternsand pricerejections). 59

  3. B.In25%ofthetimes,therelevantcurrencypairshowsa veryintensereactiontothenews(alwayshighimpactnews release)accordingtotheactualandforecastfigures,again, intheendobeysthepricedynamics.Thisreactioncancause bigprofitable50-200pipsmoves. C.In25%ofthetimes,therelevantcurrencypairshowsa bigreactiontothenews(alwayshighimpactnewsrelease) accordingtotheactualandforecastfigures,contradicting thetrends,patternsandpricerejections.Thisreactioncan alsocausebigmoves(ranging50-200pips). D.Averagebadspike(Imeanagainstyourtrade)dependson theimportanceofthenewsandvaryondifferentcurrency pairsbutingeneralitcanbe15-50pips. E.Ifthenewsreleaseoccursatatightmajorsupportor resistancelevel,thebadspikewillrarelygomorethan10-15 pipsawayfromhigherhighsorlowerlows. Youmaygotothisaddressandcheckabovestatementson realcharts: http://www.forexfactory.com/market.php Accordingtothesestatisticsandfacts,Itrytoplanasolid frameworktoworkaroundnewstrading. 60

  4. Figure19.3.1Anewstradeanalysis But,analyzingAUD/USDforthesamenewsrelease,wefind thatallconditionsofasuccessfulnewstradearemet.Avery tightresistancelevelandacceptablerisk/rewardratio(1:2.2) qualifyAUD/USDforthistrade. Figure19.3.2Anewstradeanalysis 65

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