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.
The news may shock the currency markets for a while. Sometimes, the results of fundamental economic announcements are surprising. For example, the release of the NFP figures has been moving the EUR/USD currency pair on average 100 pips for the last two years. Just within two minutes of the release of the NFP figures on 8:30 AM EST Friday about half of these pips occur.
Consider this worst case scenario. You are a news trader and immediately sell the EUR/USD pair within 2-5 seconds after the release of the NFP figures. However, the EUR/USD has already dropped 30 pips because of the pre news guessers who are anticipating a bad news.
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 extreme to the downside. The broker widens the pips from 3 to 12. The moment your order hits the market, you are already at a 12 pips loss. You are also 45 pips away from where you thought the market would be.
All of a sudden, the EUR/USD pair starts to pull back. But you have already pulled your trigger and entered the EUR/USD sell order. Now you are at a loss of 55 pips and you exit your trade to cut your losses. You are angry and you want to blame the broker. But you cant blame the broker.
You should read the agreement with the broker that you had to sign when you opened your trading account. There will 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 can and do end up behaving this way quite often. This usually depends on the importance or surprise results of the economic announcement.
Try not trade blindly under such circumstances. So you need to develop a survival strategy to preserve your capital and minimize your loss. This survival strategy calls for the preservation of your capital at all cost. At the same time you should make the maximum pips if you really want to trade the news.
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. - 23159
The news may shock the currency markets for a while. Sometimes, the results of fundamental economic announcements are surprising. For example, the release of the NFP figures has been moving the EUR/USD currency pair on average 100 pips for the last two years. Just within two minutes of the release of the NFP figures on 8:30 AM EST Friday about half of these pips occur.
Consider this worst case scenario. You are a news trader and immediately sell the EUR/USD pair within 2-5 seconds after the release of the NFP figures. However, the EUR/USD has already dropped 30 pips because of the pre news guessers who are anticipating a bad news.
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 extreme to the downside. The broker widens the pips from 3 to 12. The moment your order hits the market, you are already at a 12 pips loss. You are also 45 pips away from where you thought the market would be.
All of a sudden, the EUR/USD pair starts to pull back. But you have already pulled your trigger and entered the EUR/USD sell order. Now you are at a loss of 55 pips and you exit your trade to cut your losses. You are angry and you want to blame the broker. But you cant blame the broker.
You should read the agreement with the broker that you had to sign when you opened your trading account. There will 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 can and do end up behaving this way quite often. This usually depends on the importance or surprise results of the economic announcement.
Try not trade blindly under such circumstances. So you need to develop a survival strategy to preserve your capital and minimize your loss. This survival strategy calls for the preservation of your capital at all cost. At the same time you should make the maximum pips if you really want to trade the news.
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. - 23159
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.
posted by X - Men @ 3:10 AM
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