This article written by Dr. Stefan Friedrichowski and Christian Stern was originally published in the September 2014 issue of Traders' Magazine.
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.
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.
- 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.
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 holds above 1.0600 as focus shifts to Powell speech
EUR/USD fluctuates in a narrow range above 1.0600 on Tuesday as the better-than-expected Economic Sentiment data from Germany helps the Euro hold its ground. Fed Chairman Powell will speak on the policy outlook later in the day.
GBP/USD stays near 1.2450 after UK employment data
GBP/USD gains traction and trades near 1.2450 after falling toward 1.2400 earlier in the day. The data from the UK showed that the ILO Unemployment Rate in February rose to 4.2% from 4%, limiting Pound Sterling's upside.
Japanese Yen bears turn cautious amid intervention fears and geopolitical tensions
The Japanese Yen remains depressed near a multi-decade low amid the BoJ’s dovish outlook. Reduced Fed rate cut bets lift the USD to a fresh YTD top and further lend support to USD/JPY. Intervention fears and a softer risk tone could help limit deeper losses for the safe-haven JPY.
Editors’ Picks
EUR/USD holds above 1.0600 as focus shifts to Powell speech
EUR/USD fluctuates in a narrow range above 1.0600 on Tuesday as the better-than-expected Economic Sentiment data from Germany helps the Euro hold its ground. Fed Chairman Powell will speak on the policy outlook later in the day.
GBP/USD stays near 1.2450 after UK employment data
GBP/USD gains traction and trades near 1.2450 after falling toward 1.2400 earlier in the day. The data from the UK showed that the ILO Unemployment Rate in February rose to 4.2% from 4%, limiting Pound Sterling's upside.
Gold retreats to $2,370 as US yields push higher
Gold stages a correction on Tuesday and fluctuates in negative territory near $2,370 following Monday's upsurge. The benchmark 10-year US Treasury bond yield continues to push higher above 4.6% and makes it difficult for XAU/USD to gain traction.
XRP struggles below $0.50 resistance as SEC vs. Ripple lawsuit likely to enter final pretrial conference
XRP is struggling with resistance at $0.50 as Ripple and the US Securities and Exchange Commission (SEC) are gearing up for the final pretrial conference on Tuesday at a New York court.
Canada CPI Preview: Inflation expected to accelerate in March, snapping two-month downtrend
The Canadian Consumer Price Index is seen gathering some upside traction in March. The BoC deems risks to the inflation outlook to be balanced. The Canadian Dollar navigates five-month lows against the US Dollar.
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