• What Moves the Market
  • To Trade or Not to Trade
  • Proactive Trading
  • Reactive Trading

What Moves the Market

  • It is with no doubt that news and economic data releases moves the market
  • This applies to the Forex market because changes in the economic situation directly affect the demand and supply for the currency
  • News releases provide fresh information on the performance of an economy and data surprises can sharply affect the market
  • One of the most popular ways to trade forex is to trade economic data and news releases
  • Although trading the news can be exciting, it is also very risky due to the volatility that can be triggered by the news releases

 

Key Economic Releases

Economic Data Importance

  • Depending on the current state of the economy, the relative importance of these releases may change
  • For example, unemployment may be more important this month than trade or interest rate decisions
  • It is important to stay on top of what the market is focusing on at the moment

To Trade or Not to Trade

  • Traders are divided into two opposing groups whenever the question of trading during news releases comes up
  • The first group believe that the news releases will affect the markets in unexpected ways, so they will avoid trading around news releases
  • The second group believe that their analysis of the past market data discounts the upcoming changes, so there is no reason to stop trading
  • Whether you should continue trading through the news releases or not, depends upon how these events affect your trading system
  • If your trading system is based upon something that the news can affect, such as the range of the most recent candle, then perhaps it might be wise not to trade
  • If your trading system is based upon something more insulated from the news, such as a price pattern that involves several candles, you may be able to trade

 

Proactive Vs Reactive Trading

  • Economic releases can be traded either proactively or reactively
  • Trading proactively involves taking a guess on whether the data will  positively or negatively affect the market and trade accordingly
  • Trading reactively involves placing a trade after the economic data is released based on the real outcome

Trading Proactively

  • Forecasting the upcoming data release results is not as difficult as it may seem
  • To forecast Employment data, one should look at the employment subcomponent of the PMI report
  • To forecast Retail Sales data, one should look at the confidence and sales subcomponents of the PMI report
  • To forecast CPI data, one should look at the PPI report which measures inflation on a wholesale level
  • Forecasting economic data is not easy but a Masters in Economics is not needed either – just some common sense

Trading Reactively

  • Reactive trading rules out any form of prediction or anticipation
  • The reactive approach calls for a quick reaction from the trader as soon as prices starts to move
  • To beat the crowd, reactive traders put their utmost focus on the correct timing through applying one of many strategies

Reactive Trading - Hedging

  • With the hedging strategy, traders would position themselves on both sides of the market
  • This strategy consists of going both long and short at the same level before the release of the data
  • Once the number comes out, the trader must close the hedged position by taking both a profit and a loss
  • Favourable data
    • First take profit on long position, wait for a correction, and then close the short position with a smaller loss
  • Unfavourable data
    • First take profit on short position, wait for a correction, and then close the long position with a smaller loss

Reactive Trading - Straddle

  •  A variation of the “hedging” technique is the “straddle” technique and it requires using pending orders
  • The trader should find the trading range on an intraday chart and place a buy pending order above the range and a sell pending order below the range
  • Buy order should have a stop loss below the range
  • Sell order should have a stop loss above the range 
  • As soon as one of the pending orders is triggered, the trader should instantly cancel the opposing order
  • The stop loss order should be a 20 pips trailing stop loss allowing an automatic trail to breakeven when the position goes 20 pips in profit

 

Reactive Trading - Post Hoc

  • Once the market has absorbed the news outcome, it usually glides in one preferred direction
  • The trader should wait 10 to 20 minutes after the release and then take action
  • The initial directional price wave is often followed by a retracement as a result of some profit taking
  • After a reversal candle, the trader should open the new position and place the stop loss below the retracement
  • This method does not put the trader to an emotional drain and provides a better risk to reward ratio

 

Reactive Trading - Post Hoc

  • Once the market has absorbed the news outcome, it usually glides in one preferred direction
  • The trader should wait 10 to 20 minutes after the release and then take action
  • The initial directional price wave is often followed by a retracement as a result of some profit taking
  • After a reversal candle, the trader should open the new position and place the stop loss below the retracement
  • This method does not put the trader to an emotional drain and provides a better risk to reward ratio

News Trading - Advantages

  • Almost every week there are key markets moving events that offer potential trading opportunities for traders
  • Many websites offer free economic calendars that can be filtered based on the currency and the importance of the event
  • News trading allows the trader to capture volatile price movements in a short period of time
  • News can act as a catalyst for prices, trends may be in pause mode and then news comes out and propels prices 
  • It does not require a lot of screen time, 5 minutes before the news release and 30 minutes to an hour after it

News Trading - Disadvantages

  • Extensive market uncertainty around news events promotes the spreads to widen significantly
  • Extreme volatility during these events can sometimes cause significant price slippages and gaps
  • Stop-loss hunting is a common phenomenon associated with news events
  • Sometimes news will bring just volatility and no distinct direction
  • Profitable as it may be, trading the news isn’t as easy as you may
  • Think – It will take loads of practice

The Story of Desmond Leong

Desmond is your average trader. He started off blowing up 7 (or more.. lost count) accounts amounting to more than 500k, tested over 30 Expert Advisors (EAs) to no success and spent over 10k on stupid useless courses.

Today he runs an award winning trading team and provides market analysis and webinars to some of the largest brokers such as IC Markets, XM, Axi, Tickmill, FXCM, VantageFX, easyMarkets and more.

He now has a simple goal: Creating an army of traders who trade profitably together and keep each other accountable. Guiding them with the most comprehensive no-BS free tutorials so that no one ever needs to go through the pain he went through himself to become a profitable trader.

My Trading Strategy