How to Trade the ISM Index

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Video Transcription:

Hello traders. Welcome to the news trading course and the third module, news that moved the market profitably enough for us to trade. In this lesson, I’m going to teach you how to trade the ISM manufacturing and the non-manufacturing PMI. We’re going to go the Forex factory calendar, we’re going to go through today’s release because today we had a release so that’s very cool. And we’re going to go then to the empty for platform to see today’s price action and I’ll teach you how you would have traded this release.

ISM Economic Calendar

Here is the Forex factory calendar and as you can see today on June the 1st we had the ISM manufacturing PMI release on the United States. Now as you can see we had a better than expected number or a better than expected index, so what we’re going to do is we’re going to try to buy the US dollar by selling the Euro US dollar. You can see that we had a better than last month’s number and of course we had a better than expected number and everything points to the green. So we have an immediate appreciation of the US dollar and that is why we’re going to try too sell the Euro US dollar.

Trading ISM

So here’s my empty for platform and this the Euro US dollar 50 minute chart on to this price action. You can see that I all ready have marked five o’clock at the time of release, and you can see that we have a huge candle to the downside. Which is what was expected because we have an appreciation or an immediate bull pressure on the US dollar which means that we have our bearish pressure on the Euro US dollar. And as you can see here we have a move of around of 80 pips until this lows.

Trading ISM

Now the first thing that we are going to do is we’re going to put our target levels and we are going to use, as always, a black horizontal line to do so. We have a very nice profit taking target right here which is about 34 pips where price was trading at the time of release, and we have a second target, which can be these lows right here. Okay?

Now, let me just show you why I am choosing these lows right here. It’s simply because you can see that we had this level being tested as resistance: once, twice, three times, four, five times then as support one, two, three, four, five times again and right now we are trading all the way above. Of course, we don’t know that the numbers are going to be good numbers, so we need to target through the upside. We are going to have our first target, this high right here which are about 24 pips or 25 pips from where price was trading and we are going try to find a new target at these lows right here. Remember, that we are always going to use previous bases, previous highs and lows as our targets.

Now this is on the 50 minutes chart, so we are going to go to the one minute chart to continue with what was actually going on the time of the release. Okay guys this is the one minute chart and what we are going to do here is pick our range. And the immediate range for us to trade are these lows right here. You can see that we tested this level as resistance. Then we broke and tested it once and twice as support and now we are trading at this level right here and of course the previous highs, the levels that we need to break to the upside.

We are going to put a pending order a few pips below. Now let me just change the color of my horizontal line to a nice red, and of course we are going to put a pending buying order all the way up here. Okay? Now, we are going to put the stop loss of the pending order to the south, above the previous highs, and of course the stop loss for the buy side below the previous lows, right here. Okay? So these are two stop losses. To have a better visual representation of what I mean, I’m going to use a blue line for our buy stop and for the stops of our buying position. Here on the buy side we have a 16 pips stop loss and on our sell side we have a 12, 13 pip stop loss and now we only need to put on our target. We all ready know that is going to be to the downside but of course the first target is going to be a few pips above these lows, and the second target is going to be a few pips above these lows.

If I were you, I would have used this base as target because it seems kind of a stretch, to go for another 50 pips on the second part of your position. So I would have used these lows, for a total of around 53 pips. Now, that’s entirely up to you. You can use these lows as your profit taking or you can use the target that we encounter on the 50 minute chart and just keep trading your stops. Okay?

What we’re going to do is we’re going to wait for the release you can see that here it’s 4:59, and then release happens and we get filled on our short position right at this level. When we get filled on our short position. What we’re going to do? We’re going to delete our buy position and… there you go, we are only left with our short position. Then, you can see that we hit the first target and when we hit the first target, we make this little high right here it seems like a correction to the upside, but because we are all ready in a short position we are not going to trade this correction. And you can see that again, price corrects to the upside, it doesn’t hit our stop and then it moves and hit our second target.

You can see that the target that I told you about finds a lot of buyers right here. We all ready have 27 pips from the first position and we have 50 pips from the second position. What we are going to do here is well…once the second target gets hit, we are no longer in a trade. But what we’re going to do is, we’re going to do, is we’re going look at the previous base. And you can see right here, the price comes all the way back to the previous lows. Then we have the rejection candle and when we get the rejection candle we can again, short this instrument and putting our stops above the previous high. And this gives us a very tight seven pips stop loss and we can look for this level as the target now. We’re going to put our levels right here. And you can see that our target gets hit on the second position and that gives us an extra 27 pip for about at 100 pip win on a ISM manufacturing PMI trade.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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