Why Trade The News? (Part II)
There are a lot of news events in the forex world. These news releases often disrupt the short term forex markets. Quarterly reports carry more weight than the monthly and weekly news. There are many strategies for news trading.
Sometimes the results of fundamental economic announcements are surprising. The news may shock the markets for a while. For example, the release of the NFP figures has been moving the EUR/USD pair on average 100 pips for the last two years. About half of these pips occur just within two minutes of the release of the NFP figures on 8:30 AM EST Friday.
Consider this worst case scenario. You are a news trader and immediately sell the EUR/USD currency pair within 2-5 seconds after the release of the NFP figures on Friday. However, the EUR/USD has already dropped 30 pips because of the pre news guessers who are anticipating a bad news and want to close their open positions.
Your forex broker gets thousands of EUR/USD sell orders just like yours almost at the same moment and it will take your broker a few seconds to execute all these orders. While you wait for your order to be executed, the EUR/USD price falls another 15 pips.
As no traders are placing the buy orders, the volatility is so extreme to the downside; the broker widens the pips from 3 to 12. The moment your order hits the market, you are already -12 pips. You are also 45 pips away from where you thought the market would be.
Suddenly the EUR/USD pair starts to pull back. But you have already pulled your trigger and now you are at a loss of 55 pips. You exit your trade to cut your losses. You are angry. You want to blame the broker. But you cant blame the broker.
You had to sign an agreement when you opened your trading account. You should have read the agreement you made with the forex broker when opening the account. There will surely be a clause in it that says that the broker does not guarantee order execution at times of high volatility.
Do news traders always end up like this? Not always. But most news traders like you and me can and do end up behaving this way quite often. This usually depends on the importance or surprise results of the economic announcement on the currency markets.
So you need to develop a survival strategy that calls for the preservation of your capital at all cost while at the same time giving you maximum pips if you really want to trade the news. Do all that not to lose money.
The priority is not to make as much money as possible; it is to reduce your risk by patiently waiting for conservative repeatable setups. News trading puts a traders patience to test. Your objective should be to use the undue volatility to identify the important levels of support and resistance.
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in trading stocks and forex. Trade Forex News. Learn Forex Trading.
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