How to Trade News Releases
News trading is intriguing for many traders. As a result most traders prefer to stay out of the market at the time of the news release like the NFP Report or the argyle stranger things FOMC Meeting Minutes. But there are traders who have adopted the profession of trading news. However, news trading involves a sense of instant gratification. Within seconds, if you can predict the market direction correctly, you can make a few hundred pips. Now, compare this with most of the day traders who make these much pips in a matter of weeks.
Trading news is for those traders who like a lot of action within a short period of time. News trading strategies are based on the fact that before any scheduled news release, market develops a certain expectation about the economic numbers that will be released. When the actual economic numbers are released if there is a wide deviation between the actual and the expected, there will be a knee jerk reaction in the market.
Now, suppose you are a risk taker who wants to trade the news despite the fact that many traders avoid trading it. How to go about it? There are basically three ways, you can trade the news. The first news trading strategy involves betting on the market direction and entering the market before the news is released. The second news trading strategy entails waiting for the news to hit the market and then entering the market. The third news trading strategy involves a combination of both the above two strategies. Let’s discuss the first news trading strategy in detail.
Suppose, you are a pro active trader. You have been watching the market before the NFP Report release and want to make an educated guess on the market direction at the time of the news release. So, you enter the market 20 minutes before the news release time. One advantage of doing this is to avoid the widening of spreads that usually happens at the time of the new release. You made an entry well before the news release time when the spreads were tight. Now you place your bet on the market direction by going long or short. Place a stop 30 pips below the entry if long and 30 pips above the entry if you have a short trade. Now, wait for the news release to take place.
Now, it depends on how well you had predicted the market direction. If your prediction was good and the market moved in the same direction that you had predicted, you will close half of the position when the market moves by the amount you had risked. In this case 30 pips! For the remaining half, place a trailing stop with a 20 day Simple Moving Average so as to capitalize on the move as much as possible. In case, the market moved in the wrong direction, the stop loss will be hit and you are out of the market with a loss of 30 pips!
You will be using the 5 minutes chart for this news trading strategy. You might be wondering why exit half of the position when the market moved in your favor. This was done to reduce risk and take profit as quickly as possible in order to avoid any whipsaw that might develop in the market. The most important thing about this news trading strategy is to predict the market direction at the time of the news release correctlyA decade ago, newspapers were the best sources of information and the best media for the latest news in and around the world. The people were able to determine the importance of subscribing a daily copy of newspapers or magazine. Thus, it has always been a tradition for news readers to get informed with what was happening around their community or country. Such tradition is also being practiced by some of the news readers. Although, the number of newspaper subscribers declined generously a decade ago due to the rise of the Internet.
Nowadays, people use computers or other small electronic gadgets to read news. The internet is the main reason why the schematic diagram of news readers was radically changed. In today’s world, people join online News Community to get updated with the latest news or be able to air out their opinion. Thus, the evolution or the improvement of news media has been so radical and abrupt. However, nobody can deny the fact that there are many advantages in joining a news community, as some of them are as followsAs much as the sun shines during the day and the moon at night, things happen every second. And every second is an opportunity for news writers and reporters. Millions of fresh news are written everyday, but are they worth reading-about? Some are, but not all of them.
News trading is intriguing for many traders. As a result most traders prefer to stay out of the market at the time of the news release like the NFP Report or the argyle stranger things FOMC Meeting Minutes. But there are traders who have adopted the profession of trading news. However, news trading involves a…