Significant news events happen throughout the month and the biggest is Non-Farm payroll. Its impact on price action is usually dramatic, and there is little to tell which way it is going to go. The usual rule of thumb is to stay out of the market on big news event days, or at the very least manage running trades with caution. The other approach, by those using larger time frame strategies, is to embrace it! This is not really possible on the smaller intra-day time frames where the smaller bars are more susceptible to the idiosyncratic movements of news events and can typically be spiked in and out of the trade before frustratingly seeing it head in the hoped for direction.
However for larger time frames, such as the daily bars, the opportunity to play the odds can be very rewarding. It’s all about reward to risk ratio. Big news events can, and often do, cause big swings with a single movement going several percent in one direction. If this goes in you favour of course it’s very rewarding, but predicting the direction is the difficult part. So the approach is not to try and predict the news, and therefore the resulting direction price will take. It’s simply not worth the effort. Just think about the reward to risk. It’s literally a toss of a coin as to which direction price will go but if you’re targeting a reward to risk of say between 3 and 6:1 then with a 50/50 win probability the rewards are going to heavily outweigh the losses.
News trading must only be done where there is high reward potential with minimal risk, otherwise it’s a recipe for disaster. It can only be done on an end of day strategy where the larger daily bar has more chance of ‘soaking’ up the turbulence without getting spiked in and out before the big move. Don’t try and second guess the news or resulting direction, just focus on the technical, trading what you see with (and it can’t be overstated) maximum reward potential and minimum loss potential. Read More.
However for larger time frames, such as the daily bars, the opportunity to play the odds can be very rewarding. It’s all about reward to risk ratio. Big news events can, and often do, cause big swings with a single movement going several percent in one direction. If this goes in you favour of course it’s very rewarding, but predicting the direction is the difficult part. So the approach is not to try and predict the news, and therefore the resulting direction price will take. It’s simply not worth the effort. Just think about the reward to risk. It’s literally a toss of a coin as to which direction price will go but if you’re targeting a reward to risk of say between 3 and 6:1 then with a 50/50 win probability the rewards are going to heavily outweigh the losses.
News trading must only be done where there is high reward potential with minimal risk, otherwise it’s a recipe for disaster. It can only be done on an end of day strategy where the larger daily bar has more chance of ‘soaking’ up the turbulence without getting spiked in and out before the big move. Don’t try and second guess the news or resulting direction, just focus on the technical, trading what you see with (and it can’t be overstated) maximum reward potential and minimum loss potential. Read More.
Do you want to learn more?
VIDEO: Trading the NFP - LittleFish FX
REPORT: NFP: The Fundamental Giant - Babypips
REPORT: News Trading - Rick Wright
REPORT:News and Economic Data That Affect Forex Market Movements - Mario Sant Singh
VIDEO: Does Forex News Trading really work? - Jarratt Davis
REPORT: Two Cases When Trading News Events Goes Wrong - Yohay Elam
Editors’ Picks
EUR/USD holds steady near 1.0650 amid risk reset
EUR/USD is holding onto its recovery mode near 1.0650 in European trading on Friday. A recovery in risk sentiment is helping the pair, as the safe-haven US Dollar pares gains. Earlier today, reports of an Israeli strike inside Iran spooked markets.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD is rebounding toward 1.2450 in early Europe on Friday, having tested 1.2400 after the UK Retail Sales volumes stagnated again in March, The pair recovers in tandem with risk sentiment, as traders take account of the likely Israel's missile strikes on Iran.
USD/JPY recovers above 154.00 despite Israel-Iran escalation
USD/JPY is recovering ground above 154.00 after falling hard on confirmation of reports of an Israeli missile strike on Iran, implying that an open conflict is underway and could only spread into a wider Middle East war. Safe-haven Japanese Yen jumped, helped by BoJ Governor Ueda's comments.
Editors’ Picks
EUR/USD holds steady near 1.0650 amid risk reset
EUR/USD is holding onto its recovery mode near 1.0650 in European trading on Friday. A recovery in risk sentiment is helping the pair, as the safe-haven US Dollar pares gains. Earlier today, reports of an Israeli strike inside Iran spooked markets.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD is rebounding toward 1.2450 in early Europe on Friday, having tested 1.2400 after the UK Retail Sales volumes stagnated again in March, The pair recovers in tandem with risk sentiment, as traders take account of the likely Israel's missile strikes on Iran.
Gold: Middle East war fears spark fresh XAU/USD rally, will it sustain?
Gold price is trading close to $2,400 early Friday, reversing from a fresh five-day high reached at $2,418 earlier in the Asian session. Despite the pullback, Gold price remains on track to book the fifth weekly gain in a row.
Bitcoin Price Outlook: All eyes on BTC as CNN calls halving the ‘World Cup for Bitcoin’
Bitcoin price remains the focus of traders and investors ahead of the halving, which is an important event expected to kick off the next bull market. Amid conflicting forecasts from analysts, an international media site has lauded the halving and what it means for the industry.
Israel vs. Iran: Fear of escalation grips risk markets
Recent reports of an Israeli aerial bombardment targeting a key nuclear facility in central Isfahan have sparked a significant shift out of risk assets and into safe-haven investments.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.