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.

Chart

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.

Chart

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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Trading the financial markets is associated with increased level of risk. Past performance is not indicative of future results. All materials are provided for educational purposes only and by no means may serve as a trading or investment advice.