Trading The News (Part III)
Develop your own forex trading system.After the results of the fundamental economic announcement hits the news wires, the currency markets often jump. When it does, it smashes through the nearest and weakest levels of support and resistance.
Learn forex news trading.However, at some point the price has jumped too far and too fast and pulls back. This price level is very important. It often takes three to five minutes to reach that level. When the price level reaches this level and begins to pull back, this is the end of the news spike in most of the cases.
Get good forex training.Mark this level with a horizontal line on the chart. Just before the news came out, the markets began to wake up. Some traders are placing orders on hunches, rumors and guesses. Don’t forget that they can’t know the results of the news before it is released.
So the chances are the market may move in the wrong direction as the initial reaction. Sometimes, this last minute volatility is created by traders exiting a trade before the news came out.
Don’t trade just because you see the market moving in a particular direction 20 seconds before the news was announced. Don’t pull the trigger at this point. Preserve the capital. The news is then released suddenly and the market moves dramatically. Thousands of orders are placed.
Don’t pull the trigger yet. However, we now have two pieces of vital information with us now as we know the results of the economic announcement. We now know whether it was good, bad or surprising for the markets. There are unique risks like slippage, gapping, spreads and such at this time.
Let the market move. Stay out. Discipline is important. Don’t pull the trigger. It may feel like you are missing a great trading opportunity. We now know the direction in which the market is moving. You should try to avoid the risk of trading at this point.
The price begins to pull back. You have a better market to trade now. Volatility is still high but not wild, crazy or out of control. Slippage risk drops to zero. The danger of spreads widening is now drastically reduced.
You now know the direction, support and resistance of the market. The price retracements are often where the novices lose money. You have avoided it by waiting for the price to pull back. Now trade in the direction of the market.
You should let the news come out. Let the volatility identify the support and resistance. Let the price pull back. Let the price bounce again and cross the horizontal line that you had drawn. That’s too much waiting and requires good patience on your part.
It will keep you out of bad trades. If the market reacts powerfully to the news, only then trade. Otherwise stay out of the trade. The main focus should be preservation of your capital and only trade if the chances of winning are high.
