In trading it is shouted from the rooftops, “trading is NOT for gamblers”. And it is absolutely true. Professional traders do NOT take punts; they have a clear set of rules that pinpoint high probability trades within a given strategy, and they happily walk away from the ‘table’ when those rules aren’t met. They abhor thrill seeking!
If however from time to time they were to take a trade in which the outcome was the same as a toss of a coin: 50/50; well surely then that is gambling? Entering a trade without a priori knowledge, and simply hoping it goes your way… Surely not! That smacks of rank amateurism!
Well, here’s the secret. For a growing army of end of day traders in pursuit of high reward trades, news trading consistently offers them that opportunity, even though they usually have no idea what the news release is! It’s not so much about content but the effect.
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. Below is a case in point:
CHFJPY before the news announcement
We had a sell order at the break of the low of the inside high test with our stop loss above the high and a target at the previous swing low.
The pay-off: CHFJPY after the news announcement
The news could have gone either way but this time it went in our favour. Just as well we did not set a limit order as the news caused this trade to run in excess of twice our target! This example demonstrates how we can really use news to reward us by keeping the reward potential high but the risk to a minimum.
So the rules here are that 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.
Any opinions expressed by our company’s representatives regarding the prices of specific currencies and the direction they will take in the future are purely opinions and are used for demonstration or training purposed only. They do not necessarily represent the opinion of Thelazytrader.com are NOT guaranteed in any way. In no event shall Thelazytrader.com have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided verbally or via the Internet, or any delays, inaccuracies, errors in, or omissions of information.
Editors’ Picks
EUR/USD softens below 1.1800 on Fed hawkish remarks
The EUR/USD pair edges lower to around 1.1775 during the early Asian session on Wednesday, pressured by a renewed US Dollar demand. Traders await the US President Donald Trump's State of the Union address later on Wednesday for clarity on fiscal policies.
GBP/USD regains 1.3500 and above
GBP/USD extends its advance for the third day in a row on Tuesday, this time retesting the area beyond the 1.3500 hurdle. Cable’s uptick comes despite decent gains in the Greenback and the dovish message from the BoE’s Bailey at the UK Parliament.
USD/JPY struggles near two-week low amid BoJ rate hike uncertainty, ahead of Trump’s address
USD/JPY sticks to its positive bias near 156.00 during the Asian session on Wednesday and remains close to a two-week high as reports that Japan’s PM wants the BoJ to go slow on future rate hikes continue to weigh on the Japanese Yen. The US Dollar, on the other hand, draws support from the Fed's hawkish outlook and also acts as a tailwind for spot prices amid a positive risk tone. However, intervention fears could cap the currency pair ahead of Trump's State of the Union address.
Editors’ Picks
AUD/USD edges higher as Australian CPI reaffirms RBA's hawkish stance
AUD/USD edges higher following the release of Australian consumer inflation figures, which backs the RBA's hawkish tilt and supports the Australian Dollar amid a positive risk tone. Spot prices, however, remain confined in a nearly two-week-old range amid trade-related uncertainties and ahead of Trump's State of the Union address. In the meantime, the Fed's less dovish outlook acts as a tailwind for the US Dollar and contributes to capping the currency pair.
Gold consolidates below $5,150 as traders await Trump's State of the Union address
Gold steadies below the $5,150 level following the previous day's pullback from the monthly peak as traders opt to wait on the sidelines ahead of Trump's State of the Union address. In the meantime, trade-related uncertainties and geopolitical risks seem to act as a tailwind for the safe-haven bullion. However, the Fed's less hawkish outlook underpins the US Dollar, which, along with a positive risk tone, caps the upside for the non-yielding yellow metal.
USD/JPY struggles near two-week low amid BoJ rate hike uncertainty, ahead of Trump’s address
USD/JPY sticks to its positive bias near 156.00 during the Asian session on Wednesday and remains close to a two-week high as reports that Japan’s PM wants the BoJ to go slow on future rate hikes continue to weigh on the Japanese Yen. The US Dollar, on the other hand, draws support from the Fed's hawkish outlook and also acts as a tailwind for spot prices amid a positive risk tone. However, intervention fears could cap the currency pair ahead of Trump's State of the Union address.
Hyperliquid registers mild gains following CoinShares' ETP launch
Hyperliquid registered a 3% gain on Tuesday after CoinShares announced the launch of its Physical Hyperliquid Staking exchange-traded product, offering investors exposure to the token's price and staking yields.
The Citrini report: How a debatable AI narrative can shake Wall Street Premium
That AI-related headline alone was enough to rattle investors.US stocks slid sharply on Monday after a widely circulated Citrini Research memo outlined a hypothetical “2028 Global Intelligence Crisis”, warning that rapid AI adoption could push US unemployment into double digits as early as by mid-2028.
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