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This article written by Dr. Stefan Friedrichowski and Christian Stern was originally published in the September 2014 issue of Traders' Magazine.

  • Dr. Stefan Friedrichowski is physicist and full-time trader and manages the scientific work and the development of trading strategies and Christian Stern is full-time trader and heads the treasury and the education department at Trading Stars.

Traders always search for volatility – there is even a dependency of it, because without market movements you will not earn profits. Around the time of the publication of important economic news the stock markets often show erratic movements in many underlyings. We show you how to use these movements successfully with an example of EUR/USD. 

EUR/USD

The Trading Idea There are days when prices only move in slow-motion – there are only sideways phases and many false breakouts. But then there are days where everything changes: dynamic breakouts up or down, sometimes even to both sides within minutes. These events can take place completely unplanned (for example because of attacks, riots, natural disasters) or predictably at big news-events like the publication of the gross domestic product (GDP) or the NFP-data (non-farm payrolls) or a press conference of the Fed. Dynamic price movements take place, but you know the date and time in advance. We want to introduce a trading idea based on the monthly ECB-interest rate decision and we want to show that we can recognise a mathematical probability advantage and use it for a real profit. 

An old saying goes: “Close your trades prior to important news or at least protect them with a stop-loss.” 

This is absolutely true. There may be some insiders who know in advance what will be published, but the reaction of the market is hard to predict. For example nonfarm payroll data is published and they are better than expected, which should mean a bullish move. But maybe because of this the market fears that the monetary measures will be reduced and therefore the DAX drops 100 points. In hindsight we can always explain the “Why”. But to be honest, this could be an explanation for the contrary as well. The consequence is clear: Stay still and close open positions – unless you want to trade the news systematically. 

Editors’ Picks

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD stays under bearish pressure and trades at its lowest level since early May below 1.0700. Unabated US Dollar demand amid risk aversion and looming EU political uncertainty exert downside pressure on the pair heading into the weekend.

EUR/USD News

GBP/USD slumps to multi-week lows below 1.2700

GBP/USD slumps to multi-week lows below 1.2700

GBP/USD extends its decline on Friday and trades at its lowest level in nearly a month below 1.2700. In the absence of high-tier data releases, the US Dollar continues to benefit from souring market mood, forcing the pair to stretch lower in the second half of the day.

GBP/USD News

USD/JPY reverses gains to near 157.00 amid risk aversion

USD/JPY reverses gains to near 157.00 amid risk aversion

USD/JPY has pared back gains to trade near 157.00 in the European trading hours on Friday. Broad risk aversion helps the Japanese Yen recover ground after falling hard on the Bank of Japan's decision to hold the policy settings unchanged.

USD/JPY News

Editors’ Picks

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD stays under bearish pressure and trades at its lowest level since early May below 1.0700. Unabated US Dollar demand amid risk aversion and looming EU political uncertainty exert downside pressure on the pair heading into the weekend.

EUR/USD News

GBP/USD slumps to multi-week lows below 1.2700

GBP/USD slumps to multi-week lows below 1.2700

GBP/USD extends its decline on Friday and trades at its lowest level in nearly a month below 1.2700. In the absence of high-tier data releases, the US Dollar continues to benefit from souring market mood, forcing the pair to stretch lower in the second half of the day.

GBP/USD News

Gold clings to recovery gains at around $2,330

Gold clings to recovery gains at around $2,330

Following Thursday's pullback, Gold holds its ground on Friday and trades in positive territory near $2,330. The benchmark 10-year US Treasury bond yield edges lower toward 4.2%, helping XAU/USD push higher ahead of the weekend.

Gold News

Monero price poised for a downward correction

Monero price poised for a downward correction

Monero price has encountered resistance at a critical level. The technical outlook suggests a potential short-term correction as momentum indicators signal a bearish divergence.

Read more

Week ahead – RBA, SNB and BoE next to decide, CPI and PMI data also on tap

Week ahead – RBA, SNB and BoE next to decide, CPI and PMI data also on tap

It will be another central-bank-heavy week with the RBA, SNB and BoE. Retail sales will be the highlight in the United States. Plenty of other data also on the way, including flash PMIs and UK CPI.

Read more

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