Major News Announcements and Trading Around Them

 

Video Transcription:

Hey, traders. Welcome to Video 13 of the Forex Beginners Course. This is
Cory Mitchell. In this video we’re looking at trading around major news
announcements brought to you by Investoo.com.

So when you day trade you need to be cautious of high impact news events.
These are scheduled events which are shown on an economic calendar and
ranked from low to high impact that will show you where you can find all
these events in an economic calendar in a moment. Low impact news is of no
consequence.

For medium impact news day traders, you may wish to lighten your positions
or exit all your positions before the news is released to avoid slippage or
stop loss orders so a medium impact news event can cause the price to swing
pretty aggressively, causing a gap or a liquidity to dry up right around
the news event. So if you have an entry order or a stop there may be a
discrepancy between the price you’re expecting and the price you actually
get simply because of that increased volatility.

There’s no question as a day trader you want to get out of all your
positions before a high impact news release. So they’re typically say high
or they’re labeled red, and you want to get out of those. The reason is,
once again, the high impact news events can cause massive movements in the
forex market. So if you have an entry order, stop right near the current
price when that event comes out or that news is released. You could be
looking at a drastically different price from your expectations what you
actually get.

Swing traders don’t need to get out of position typically right before a
news event unless their orders are very close to the current price when
that news is coming out. In that case, you may as well just get out. If
you’re waiting for a pip or two on your profit target, just get out. So as
a swing trader if my orders or stops are 20 or 30 pips away from the
current price, I’ll just leave them. That’s fine.

If I’m inside and quite close to the current price when the news is coming
out, I’ll just exist those positions. The reason is, once again, I’m not
going to expose myself to additional risk of that trade simply by waiting
for one or two pips. That one or two pips is going to be inconsequential if
I get caught on the wrong side of that news event. So I will always try to
get out before if possible.

Check economic news for all countries and zones related to the pairs you
trade. So I should point out that the country or zone that the news event
is releasing will affect different pairs. If the U.S. Dollar is releasing
news, it is mostly going to affect pairs related to the U.S. Dollars or the
Euro U.S.D. and the British Pound U.S.D. If you have a trade in the odd NZD
and there is a high impact news event coming out in the U.S. Dollar, you
probably don’t have to get out of that right before the event simply
because the U.S. Dollar news is not going to affect the odd NZD currency
pair as much as it’s going to affect the odd U.S.D., the Euro U.S.D., the
British Pound U.S.D., the C.A.D., for example.

So you want to monitor and make sure that the economic news is for the
pairs that you’re actually trading. If the news is for pairs that you are
not trading, then it may have a bit of an impact still on some of the pairs
that you’re in, but it’s not going to have the massive effect that we would
expect that it would have on pairs that are directly related to that news
event.

So let’s look at what I’m talking about here. So here I have an example up.
This is the Daily FX economic calendar, and it shows for each of the zones.
Please note that you can set your current times that you don’t have to
worry. You can either set it to your desktop time, or you can set it to
your charting platform time.

So a quick way is to see on your charting platform is just pull up your
platform, put it on a one minute chart, and you can see your current
broker’s time. So we can see it is set on 02 on mine. If we refresh this,
it should say 7:02, and it does. So right now this is set up so it’s in
alignment with my broker’s time. You can also set it up so that it’s set up
for your desktop time or your home time, if that’s different than your
broker’s.

So we have here, we can see the currency. So there are New Zealand news
events. We have British Pound news events, Euro news events, Canadian
Dollar news events, U.S. Dollar. As you go through, you can see the
importance. So low is not something we’re concerned about. We also have the
date and the time. As technical traders we’re not too worried about what
the actual numbers are.

If you want to know what any of these are though, you can click on the
button to read about what it is, how it affects the price. So high impacts
are the ones that we are most concerned about. Medium impact, for the most
part, we don’t have to alter our trading too much. You may find that there
are a couple of news events which have more impact than others. So you may
wish to step aside for those.

And as you scroll through, you’ll see Japan, the Swiss, the Euro. Now you
can just go through and see the entire week so that you know ahead of time
what news events are coming out. So you can plan ahead. If you know there’s
a news event is coming out at 2:00 today, you can maybe stop trading about
15 minutes before that or taking new positions 15 minutes before that. And
that gives you time to get out of any current positions you may have, and
you want to be out before that news event by, at least, a couple of
minutes.

So you can see there’s loads of news events during the week. So it’s not
wise to take positions right before a high impact news release. If the news
is a surprise, it can draw a massive move, the liquidity dries up, and end
up with a far worse entry or exit price than you anticipated. So some
traders will take a position right before the news thinking that they can
gamble their way to the big profit because there are big moves that happen
after big news.

The problem is that when you go to exit that position you could end up
getting a far worse price simply because there’s not as much liquidity
during those volatile times which is why it’s so volatile. So you may end
up not getting the exact price you want. So it becomes a bit more of a
gamble. You risk also becomes unknown.

If you buy before a news release, you’re going to have to put a stop order
on that to control your risk. When that stop order, when the price gets
close to it, it’s going to become a market order. And when it hits that
price, it’s going to become a market order, and that could end up feeling
you at a much worse price than you expect. So while you think, oh, I put
out a stop at 10 pips, my risk is only 10 pips. If that price blows right
through you, you could be taking a 50 pip or 60 pip loss.

I actually did this the other day. I thought I’d given it enough room, I
was 30 pips away. It blew through me, and my stop actually ended up getting
filled about 30 pips lower. So almost double the risk I thought it was.
That’s fine. I only risk 1% or less, so even when that occurs, my risk is
still quite small and manageable.

So that is why in the former videos we talked about that money management
is very important. So instead wait for news to be released and then jump in
using a well-defined and risk control strategy. So we can still trade news,
we’re just not going to take our positions right before it and have stops
that could potentially blow up in our face. Instead we’re going to let that
news released.

There’s going to be a lot of volatility in the initial moments after the
release, but after a few price bars whether using a one minute chart, five
minute chart, or 15 minute chart we’re going to start to see the market
return to a bit more normalcy. They’re still may be a lot of volatility
there, but we can just then trade in a normal fashion. And you can look at
the picking entry stops and targets for that.

So we had a news event here the other day on the British Pound. So you can
see this huge bar here, so that’s the one we want to avoid. Say, you were
going short right at the top of this bar, thinking that it would eventually
go down, and you place your stop right in here. There’s no way that your
stop would get filled right in here without much volatility. It likely
would have got filled up here. So you would have almost doubled your risk,
maybe even tripled your risk depending on how good your broker is.

So there’s very little way to control your risk even with a stop on a move
like this, same with here. Say, you’d gone short, stop up here. It likely
would have gotten filled up here instead of where you had placed it.

So we can see this is the bar we want to avoid. This is the actual news
bar. We see there’s still quite a bit of volatility. Coming out we have
these big bars compared to what we saw before the announcement. This is
more normal market movement, and we can still see these huge bars, but even
with the volatility we still start to see some patterns after.

So as discussed in the entry stops targets video, here we have this pause
which gives us an indication that maybe the market is setting up for
another move. So we can look to trade this breakout or possibly buying in
here at this lowest consolidation expecting the price to continue higher.
So no reason to trade right at the news or even in the couple of minutes
after.

There’s still all of these tons of opportunities to jump in on the
volatility after the news has been released. Still lots of profit potential
there, but we have the added confirmation that now there’s likely to have
more liquidity in the market so we don’t have to worry about the price
blowing right through our stops. We’re more likely to get the price we
want, so there’s going to be less slippage, and we can simply just look for
trending trades like we have here.

So we have a nice move, higher, higher, and high and pull back, and then a
move to another high. So we have a trend develop here, so we can simply
just look to trade based on the trend, things that we know instead of
trying to gamble on the actual news event.

So that’s how we look at news events. Again, find an economic calendar that
you like. This one is very customizable. You can filter for which
currencies you want. You can rid of the low impact ones if you don’t want
to see them because they don’t really matter. You can even filter out the
mediums if you want. So very customizable, find one that you like. I have
mine right on my desktop here so that I can click on it, and I check it
every day before I start trading.

And then avoid that few minutes right before, at, and after a news event,
and then just jump in on the more consistent movement, the trending
movements that occur after that. There’s still lots of opportunity there,
but we’re not gambling.

Until next time, happy trading!

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