Attacking News Events with Price Action

Trading news announcements like Non-Farm Payrolls can be dangerous, and to anyone going into a news release without fear of how badly an account can be ravaged by volatility should probably avoid doing so, and instead – wait for quieter markets.

But to the trader that always protects their downside, adheres to strong money management, and protects their account by avoiding the number one mistake Forex Traders make – News announcements can offer compelling opportunities for a lot of movement in a very short period of time. Price Action, as discussed in The Forex Trader’s Guide to Price Action can assist greatly in the initiation of trades.

This movement and volatility can bring a significant amount of pips to a trader’s account.

 


It can deplete even more if not done correctly.

What follows is one of the more common ways traders can look to trade the news – regardless of which way the announcement comes out; but before we get into that – let’s establish a couple of important points.

1_ Nobody can tell the future (which is why risk management is so important in the first place).
2_ We will likely never know what the news will be before the release (see #1 as to why)
3_Even if we did know what the news announcement would be; we still don’t know exactly how the market will react to this news.

To sum it up, trading news announcements adds additional volatility to the trader’s charts. By many accounts, trading news is very similar to trading in ‘panic’ situations. The more important the news announcement, the more potential volatility that may enter into the market and the more similar to a ‘panic’ situation that news release is. An announcement like NFP (Non-Farm Payrolls) can bring some significant movement as much of the world is watching this figure for signs of future direction.

Step 1: Observe Price Leading into the Announcement
At 8AM Eastern Time, approximately 30 minutes before the NFP announcement the trader can plot support and resistance based on price action. This can be done by observing the past few hours immediately prior to the release, and drawing a rectangle around the high and the low that was hit during this period. This can be done on the 5, 15, or even 1 minute chart – the high and low of this time period will be the same.

If looking for maximum movement, often one of the ‘major’ currency pairs (any currency with USD in it) will suit that need; if looking for a more conservative approach cross-pairs can certainly work as well (pairs without the US Dollar). Below is a chart of the most popular currency pair in the world, the EUR/USD for the 14 hours leading into last month’s Non-Farm Payrolls report:

 


Step 2: Identify Support and Resistance
As you can see, for 14 hours leading into Non-Farm Payrolls in April 2012 price respected a 25 pip range. The reasons for this can be numerous; key amongst them is the fact that liquidity providers and market makers that set the prices we can execute our trades against are cautious of NFP as well.

They fully realize that a surprising number can spark a rally or a sell-off in a very short amount of time. And leading into the announcement, any significant positions taken on (by liquidity providers or retail investors executing trades) bear significant risk.

Below is a chart of EURUSD ahead of the March Non-Farm Payrolls report. Notice, the same type of phenomenon takes place here, as the market stays range-bound leading into the announcement.

 


Step 3: Set Entry Orders
Now that we’ve plotted support and resistance, based entirely around the price action taking place leading into an announcement – we can begin to set our game plan.

The one thing we know, for certain, going into a news announcement is that there will probably be volatility. Predicting which direction that volatility may move is what makes trading news difficult. But, we don’t need to know the direction that volatility will push prices, as we can set entry orders on either side of support and resistance. The picture below will illustrate more fully:

 


Step 4: Manage Orders
What if price comes down to open up our short position, and then moves directly back to prior resistance to trigger us in a long position?

For traders in the United States, where FIFO (First in-First Out execution) is the standard, it may close out our short position at a loss. So going into the trade, you have to know how you would want this situation handled.

If you would like the entry order to go long to be canceled as soon as the short position is entered (or vice versa), you can set an ‘OCO,’ or ‘One Cancels Other,’ order. That way, when the short position is entered into, the long entry gets canceled.

Step 5: Add Stops/Limits

Because we are anticipating volatility during a fast-moving environment, it behooves us to add proper risk management parameters in our trades.

We have to keep in mind that The Number One Mistake that Forex Traders Make is risking too much to make too little. Despite lofty winning percentages, that type of inverse risk-reward ratio doesn’t allow for much long-term success. Directly from the Traits of Successful Traders series compiled by DailyFX, David Rodriguez states:

“Traders are right more than 50% of the time, but lose more money on losing trades than they win on winning trades. Traders should use stops and limits to enforce a risk/reward ratio of 1:1 or higher.”

Because we have identified support and resistance previously when setting up our entry orders, we can look to place our stop on the other side of the range.

So for the short entry looking for breaks of support – stops can be placed slightly above resistance.

For the long entry hoping for breaks of resistance – stops can be placed slightly below support.

And profit targets or limits should be, at a minimum 100% of that amount. If you are risking 50 pips on the trade idea, look for a minimum of 50 to make sure that is worth your time. Many traders will look for far more than the number of pips risked, seeking a much higher risk-to-reward ratio such as 1-to-3 (50 pips risked, 150 pips sought) or 1-to-5 (50 pips risked, 250 pips sought).


Attached Files:

Posted By pamsamuel : 06 October, 2020
Related Article

In the process of currency trading, there will be a lot of losses. And the traders cannot deal with them all of the time. In fact, they may get disturbed with the condition of the business like that. It is not a good environment to manage the right kind of trading performance. In the system, the traders will have to maintain such a good performance with some of the most proper management of the system. It is good to think with the safety concern. Because there will be a lot of things which can be handled properly with that. We are talking about some good management of the business with the most proper handling power. Then there will also be some good thinking of the stop-loss and take-profit for the trades. Those two things are very much helpful for the trades. Actually, they help the traders to close the trades with the right kind of range with profits as well as losses. Even the trading platform will help the traders to maintain such a good job with that. Because the traders can set them to automatically close the trades.   The risk and profit targets will helpFor the right safety precautions, all of the traders will have to sort out the right way to manage the setups. And the risk, as well as profit target, will be the right thing for them. Basically, the traders will be using them as a reference for the stop-loss and take-profit. So, it is necessary to be minimalist in the setup process. It is good for the right management of the trades. Or in the term of trading, we could call it proper position sizing. Think in the right way to minimize your losses. Until you have a good market analysis process ready with the tools and indicators like the Bollinger Bands, the investment, as well as the profit target, can be minimal. It is a good way for the traders to maintain the right composure for the currency trading business in Forex.   Stop overtrading the marketOvertrading is one of the major cause for which the retail Singaporean traders are losing tons of money. Even after having access to the best SaxoForex trading account, they are not able to make a consistent profit. Instead of analyzing the lower time frame data, you need to focus on the daily time frame. Try to look at the longer picture of the market and you will understand how this market works. Be focus and trade the market with quality signals.   Take the trading method in the account tooWith the right safety to the trade setups, we also have to think about the right trading methods. It will be working with the time for trading. Along with proper trading method, the right management of the trading schedules will have to be there. It is not that simple for the traders to maintain the right performance in the business. And getting some good income can wait for a while. Or we can say that the right management of the long term trading process will help the traders to make such a good income. Because the process of the trading will be depending on different markets. Then there will also be some good thinking with a calm and relaxed mind. So, everything seems to be right with the long term processes. Try to make your business right with the most proper planning for that.   We all have to focus on the trading qualityAll of the time in the business, there will have to be some sort of proper management. We are talking about good handling ability of the trades. But the aim should not be on income. We all know that Forex is good with a proper interest in the trading quality. So try to make up your mind for that.

There are many traders in the forex world who often blames the forex market and their account deposit for their failure. But in reality, your trading account deposit or the forex market has nothing to do with you a failure. You are not making a profit in the forex market only because you are not maintaining a strict trading discipline in the forex market. In order to trade the market successfully, you need to have very precise knowledge of the forex market. In this article, we will discuss how we can trade small trading account and become profitable in the in the forex industry.   Never think about your account depositIf you truly want to become a professional trader then you should never think about you trading balance. You should consider your potential loss or profit in the market in terms of percentage. Most of the professional trader who is trading the financial industry for over long period of time use the simple percentage math to execute their trade with proper risk management factors.Stop overtradingThere are many rookie traders in the forex market who often thinks to make a huge amount money from their small trading account. But if you truly want to become a professional trader then you must know that forex, not a get rich quick scheme. So, if you really want to make money with your small account then you should never over trade in the market. Rather if you are truly committed in forex trading like the professional trader then you will see that your small trading account will grow significantly big within a one year.Scale down your lot sizeMost of the novice trader in the forex industry fails to make money in online trading due to high lot size trading. But in order to trade a small trading account, you need to use small lot size for lowering down your risk in the market. For instance, those who balance less than $500 should be trading with 0.01 lot in the market.Don't trade the newsNews trading is very much popular in the forex industry. If you truly want to become a professional forex trader then you should never trade the news. Most of the rookie traders think to make a huge amount of money by trading the fundamental news releases in the market. But to honest news trading doesn’t work in the long run and you will never be a professional trader if you concentrate on news trading.Take high-quality trades in the marketAs a small account holder, you should always work with your trade entry. Make sure that you are executing your trade in the market with very precised stop loss and take profit level. Never execute your trade based on technical analysis only. Make sure that you are executing high-quality trades in the market on the basis of your technical and fundamental analysis.

Commodity Trading has been conducted amongst consumers and producers since the beginnings of human civilisation. Raw materials such as Iron Ore, Copper, Tin, Wheat, Salt and Spices moved around the globe on ancient trade routes such as the silk road for thousands of years. Empires rose, expanded and fell but trade continued.The situation is no different in today’s globalised modern economies. Key commodities are extracted in one continent and shipped, perhaps for thousands of miles,to consumers on another. A whole supply and logistics chain has developed to facilitate this trade, one key part of this support network is the Commodity Markets.     Priced in dollars   Commodities such as Oil and Gold are traded in financial centres around the globe. But for the most part they are priced in US dollars. No matter whether the transactions take place in Singapore, Sydney, San Francisco or Rotterdam the US currency will usually provide the method of payment in Commodity Trading. The dollar denomination of the world’s commodity prices reflects both the size of the US economy and the dollar’s role as the global reserve currency. A role once occupied by the British Pound and one that the Chinese Yuan may someday fulfil. By extension then commodity prices are sensitive to movements and trends in the US currency, more on which later.   Accessibility Commodity markets and exchanges were created to allow producers to find buyers for their products and for industrial consumers to access regular reliable supplies of raw materials.   Or if you prefer to facilitate Commodity Trading. As such they were professional markets,which to large extent excluded the private investor. Even today it’s difficult for private clients to directly access many of world’s commodity exchanges. By virtue of the fact that majority of contracts traded on the exchanges are deliverable. And the fact that counterparties to these contracts need to demonstrate they have access to the facilities necessary to make or take delivery of the underlying.   Furthermore as professional markets, the contracts traded on these exchanges,are often tailored to the needs of industry participants, Oil companies, Gold miners etc. Rather than individual investors. For example the CME (Chicago Mercantile Exchange) WTI Crude Oil contract is over 1000 barrels of Oil, the equivalent of almost 160,000 litres.     Commodity Trading a different way The lack of accessibility and the emphasis on large deliverable contracts, favoured by the world’s commodity exchanges, goes someway to explain the growth in alternatives to traditional Commodity Trading. At Blackwell Global we offer our customers access to cash settled, non deliverable contracts on three of the world’s most highly traded commodities. Which are Crude Oil, Gold and Silver. What’s more these commodities can be traded in much smaller sizes than their exchange traded counterparts. For example the minimum trade size in our spot Gold contract is 1 troy ounce or 1/100 of a standard lot. (100 troy ounces)   What’s more those interested in Commodity Trading can trade long (buy) or short (sell) just as easily as each other. Of course as our contracts are cash settled traders don’t need to concern themselves with contract expiries or delivery dates. And unlike many exchange based commodity contracts, there is only one price to monitor rather than a separate price for each delivery month.   What factors influence commodity prices and Commodity Trading Commodity prices are influenced by a wide variety of factors. But as noted above one of the most important of these in recent times is the strength or otherwise of the US dollar.   A strong dollar has generally been seen as negative for Commodity prices whilst a weaker US dollar has generally been supportive of Commodity prices.   Commodity Trading and commodity prices, perhaps more than in any other market, are also greatly influenced by supply and demand. We need only look at how oil prices have performed since the end November 2014. When OPEC the (OIl producing nations trade body) abandoned any attempt to limit production amongst its members. Brent Crude almost halved in value inside two months and would continue to fall throughout much of 2015 before staging a rally in 2016.   Weather, natural disaster and industrial action all can and do affect commodity prices. As do changes in demand from large economies such the USA and more recently China. As such those participating in Commodity Trading need to keep abreast of international news and key economic data releases.   Contracts Blackwell Global currently offer four Commodity Trading contracts which are  WTI (US Oil) Brent (UK Oil), Spot Gold and Spot Silver.   Contract details can be found here - Trading Precious Metals - Trading Oil   Once you are familiar with how our commodity contracts trade and the benefits and advantages they offer. You may wish to apply for a live trading account  and start trading them in the real market.


Post your comment