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.
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. Read More.
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.
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. Read More.
Do you want to learn more?
VIDEO: Trading the NFP - LittleFish FX
REPORT: NFP: The Fundamental Giant - Babypips
REPORT: News Trading - Rick Wright
REPORT:News and Economic Data That Affect Forex Market Movements - Mario Sant Singh
VIDEO: Does Forex News Trading really work? - Jarratt Davis
REPORT: Two Cases When Trading News Events Goes Wrong - Yohay Elam
Editors’ Picks
EUR/USD jitters post-Fed with NFP Friday over the horizon
EUR/USD cycled familiar territory on Wednesday after the US Federal Reserve held rates as many investors had expected. However, market participants were hoping for further signs of impending rate cuts from the US central bank.
GBP/USD rises above 1.2500 on weaker Dollar
The resumption of the upward pressure sends GBP/USD back above 1.2500 the figure in response to increasing selling pressure hurting the Greenback.
Japanese Yen struggles to gain momentum, eyes on Fed decision
The Japanese Yen continues to be undermined by the divergent BoJ-Fed policy expectations. Bets that the Fed will keep rates higher for longer, lift the USD, and lend support to USD/JPY. The risk-off impulse underpins the safe-haven JPY and caps gains ahead of the FOMC decision.
Editors’ Picks
AUD/USD: Extra gains in the pipeline above 0.6520
AUD/USD partially reversed Tuesday’s strong pullback and regained the 0.6500 barrier and beyond in response to the sharp post-FOMC pullback in the Greenback on Wednesday.
EUR/USD jitters post-Fed with NFP Friday over the horizon
EUR/USD cycled familiar territory on Wednesday after the US Federal Reserve held rates as many investors had expected. However, market participants were hoping for further signs of impending rate cuts from the US central bank.
Gold prices skyrocketed as Powell’s words boosted the yellow metal
Gold prices rallied sharply above the $2,300 milestone on Wednesday after the Federal Reserve kept rates unchanged while announcing that it would diminish the pace of the balance sheet reduction.
Ethereum plunges outside key range briefly as US Dollar Index gains strength
Institutional whales appear to be dumping Ethereum after recent dip. Fed’s decision to leave rates unchanged appears to have helped ETH's price recover slightly. SEC Chair Gensler has misled Congress, considering recent revelations from Consensys suit, says Congressman McHenry.
The FOMC whipsaw and more Yen intervention in focus
Market participants clung to every word uttered by Chair Powell as risk assets whipped around in a frenetic fashion during the afternoon US trading session.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.