Trading the news in a simple way, Part 2
|In today’s article, I will continue talking about trading around the major news announcements. As you remember from the previous article, reading market sentiment is more important for a short-term trader rather than trying to analyze long-term fundamentals.
Now, as I’m writing this article, it’s 2 hours left before the ECB interest rate decision. What about the current price action? We see that it grows.
How do you think - why the price of a currency pair (an asset) grows in a face of uncertainty? There may be a very simple reason: it goes “North” due to expectations of a more hawkish monetary policy than expected. In fact, it doesn’t matter what would really happen, but expectations are what really matters since they create speculations.
I bet that when the real decision is released to the public, the price will sharply go down (at least, for a current day). That’s an implementation of an old adage “buy the rumors, sell the news”.
How to trade this situation?
The prediction (or better said, anticipation) of a certain event doesn’t automatically open an opportunity for a good trade. The former requires to provide a decent entry point and a short (and reasonable) stop-loss.
As a variation of a good entry may be the situation if (when) the price breaks previous days extreme before the news announcement like it is shown on the picture.
That’s just an example, not a trading suggestion. In your trading, you should develop a set of your own “signature” setups which work for you and which you understand well.
Good luck and have a good day ahead!
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