Why Trade The News? (Part II)
There is a lot of news in the world that can move the currency markets. Fundamental economic news releases often disrupt the short term forex markets and quarterly reports carry more weight than the monthly and weekly news. There are many strategies for news trading used by the currency traders.
Sometimes the results of fundamental announcements are surprising and shock the markets for a while. Lets take an example. The release of the NFP figures has been moving the EUR/USD pair on average 100 pips for the last two years. About half of these pips occur just within two minutes of the release of the figures.
Lets consider this worst case scenario. You are a news trader. You immediately sell the EUR/USD pair within 2-5 seconds after the release of the NFP figures. However, the EUR/USD has already dropped 30 pips because of the pre news guessers.
Your forex broker gets thousands of EUR/USD sell orders just like yours almost at the same moment and it will take your broker a few seconds to execute all these orders. While you wait for your order to be executed, the EUR/USD price falls another 15 pips.
As no traders are placing the buy orders, the volatility is extreme to the downside. The broker widens the pips from 3 to 12. The moment your order hits the market, you are already at a 12 pips loss. You are also 45 pips away from where you thought the market would be.
All of a sudden, the EUR/USD pair starts to pull back. But you have already pulled your trigger and entered the EUR/USD sell order. Now you are at a loss of 55 pips and you exit your trade to cut your losses. You are angry and you want to blame the broker. But you cant blame the broker.
You had to sign an agreement when you opened your trading account. You should read the agreement with the forex broker. There will be a clause in it that says that the broker does not guarantee order execution at times of high volatility.
Do news traders always end up like this? Not always but they can and do end up behaving this way quite often depending on the importance or surprise results of the economic announcement.
Try not trade blindly under such circumstances. So you need to develop a survival strategy to preserve your capital and minimize your loss. This survival strategy calls for the preservation of your capital at all cost. At the same time you should make the maximum pips if you really want to trade the news.
Your priority is not to make as much money as possible. It is to reduce your risk by patiently waiting for conservative repeatable setups. News trading puts a traders patience to test and your objective should be to use the undue volatility to identify the important levels of support and resistance. - 23223
Sometimes the results of fundamental announcements are surprising and shock the markets for a while. Lets take an example. The release of the NFP figures has been moving the EUR/USD pair on average 100 pips for the last two years. About half of these pips occur just within two minutes of the release of the figures.
Lets consider this worst case scenario. You are a news trader. You immediately sell the EUR/USD pair within 2-5 seconds after the release of the NFP figures. However, the EUR/USD has already dropped 30 pips because of the pre news guessers.
Your forex broker gets thousands of EUR/USD sell orders just like yours almost at the same moment and it will take your broker a few seconds to execute all these orders. While you wait for your order to be executed, the EUR/USD price falls another 15 pips.
As no traders are placing the buy orders, the volatility is extreme to the downside. The broker widens the pips from 3 to 12. The moment your order hits the market, you are already at a 12 pips loss. You are also 45 pips away from where you thought the market would be.
All of a sudden, the EUR/USD pair starts to pull back. But you have already pulled your trigger and entered the EUR/USD sell order. Now you are at a loss of 55 pips and you exit your trade to cut your losses. You are angry and you want to blame the broker. But you cant blame the broker.
You had to sign an agreement when you opened your trading account. You should read the agreement with the forex broker. There will be a clause in it that says that the broker does not guarantee order execution at times of high volatility.
Do news traders always end up like this? Not always but they can and do end up behaving this way quite often depending on the importance or surprise results of the economic announcement.
Try not trade blindly under such circumstances. So you need to develop a survival strategy to preserve your capital and minimize your loss. This survival strategy calls for the preservation of your capital at all cost. At the same time you should make the maximum pips if you really want to trade the news.
Your priority is not to make as much money as possible. It is to reduce your risk by patiently waiting for conservative repeatable setups. News trading puts a traders patience to test and your objective should be to use the undue volatility to identify the important levels of support and resistance. - 23223
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in trading stocks and forex. Trade Forex News. Learn Forex Trading.
posted by X - Men @ 3:34 AM
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