Trading Major News Releases
Hey, traders. Welcome to video 22 of the Advanced Forex Strategies Course. This is Cory Mitchell. In this video, we are looking at trading big news releases. This is a day trading strategy. So, we’re going to be using it on the 1, 5, and 15-minute charts. Brought to you by Investoo.com.
So, news creates a lot of volatility. Most Forex economic calendars mark which events are high impact. When we’re day trading, we want to get out of all positions a couple minutes before a high impact news release. Holding through can mean big slippage if the price goes against you.
So, here is an example of an economic calendar. This is the DailyFX economic calendar. You can filter it so that you just see certain pairs that you trade. I have mine set to see most of them. They’re also rated in terms of low, medium, and high. So, low is really no concern. It’s not going to have much of an impact on the price. Medium may have some effect, and high are the ones that we definitely want to be out of before it comes out.
Here is one that happened last night, the Australian rate decision, high impact event, especially if you are trading in Australian pairs. So, for example, the AUD/USD or the Australia/New Zealand dollar pair. You’d want to be out right before that announcement comes out, about a couple minutes before.
There is potentially a trickle-down effect in some of these other ones. So, the euro/USD consumer index. If this highly affects the euro/USD, which it will, it may also have a trickle-down effect into some other pairs that involve the euro or the US dollar. So, even if you’re not trading the euro/USD or something, you might want to watch, even if you’re in the Australian/US dollar, simply because when this affects the euro/US dollar, that could also affect other US dollar related pairs.
Typically it’s going to have much less of an effect, and the main impact is going to be seen in the actual direct currencies that it would affect, so the Australian dollar as I mentioned, Australian/USD, the AUD/JPY. For euros, it’d be the euro/USD, euro/GBP, Great British pound, and other pairs that are directly related to the euro.
So, get out before those high-impact news releases. I should point out if you are swing trading, you do not need to get out before high-impact news releases. Generally your stops and targets are a big bigger. Your entry orders are a bit further away from the price. So, the news releases aren’t going to affect you as much. So, you don’t need to get out. You’re just going to stick to your strategy, whatever you’re trading. It’s just day traders. When your trades are only lasting a few minutes, you may as well get out of all positions a couple minutes before these big releases.
Holding through can mean big slippage if the price goes against you. When that news release comes out, volatility can disappear, and you have a big price move. So, even with a stop, this stop that you’re expecting may be . . . You could get a different price than that, and it could end up being a much larger loss than you expect.
So, the news is going to come out. We’re going to see a big jump in volatility. Once we see that initial surge, and then we get a consolidation after that, then it just becomes another trending type strategy, albeit a volatile one. So, we can use any other methods we’ve learned to enter that trade.
Prices move quickly around news. Don’t trade unless you have instant execution with your broker. So, if you are constantly hitting buy or sell, and you get what they call a re-quote, where it says, “The price has changed. Would you like to accept it,” do not trade with those around news, with those types of brokers, simply because you don’t know the price you’re going to get. You may miss opportunities quite often, simply because you’re acting quickly to get a good price, and if you get re-quoted, you’ve basically missed that price.
We can use limit orders to get in stops, targets, but we can also be nimble if the price turns sharply against us. Typically there is enough volatility to get out and then get back in if needed. Therefore, we can more actively trade in a lot of volatility and don’t just need to let the price hit our stop or target.
Remember, in most of these videos I’ve said let the price hit your stop or target, no touchy-touchy once you’re in. This doesn’t apply as much here. Say, for instance, the non-farm payroll is a high-impact news release that comes out on the first Friday of the month. For the US dollar, comes out . . . That can cause the price to move 100 pips in 15 minutes. Whereas on a normal day in the euro or the British pound, you might only see 60 pips of movement.
So, news creates a lot of volatility in a short amount of time, which means we don’t need to be as conservative because there’s a lot of momentum to take part in. So, if a price gets very close to our stop or very close to our target, we can just get out because we can expect that momentum . . . It could turn quickly against us or for us, so we want to act quickly, be nimble. If we’re in a profitable trade and it starts to go sharply against us, just get out, take the profit, look for another entry, because there’s a lot of opportunity. As opposed to on a normal day, it’s a little bit more slow moving. So, we tend to just want to let the price hit our stop or target.
So, this is May 2nd, British pound/USD 5-minute chart. We can trade news on a 1, 5, or 15-minute chart. It really doesn’t matter. On the 15, you’re going to get a few less signals, and on the 5, compared to the one-minute chart, just because there’s fewer bars that we’re going to look at.
So, May 2nd was the first Friday of May. So, we’re looking at this first. This was the bar that the news was released on. About 41.4 pips in five minutes from the start of this. This is a five-minute bar. So, it moved 41 pips in five minutes. Then after that, we see this sharp move back, and it consolidates. So, we have some potential trades here. This doesn’t consolidate four bars right away, but we do have some other entries. The top of this bar . . . Remember, if we’re looking at momentum, as we’ve looked in the last few videos and anticipating the next move, the top of this bar equals a potential entry, or we can put out an order.
This is just a consolidation, based on this prior down move and the overall trend of the day. We are expecting further downside. So, we can see entering in this area would have just gotten filled. Price drops away. We do get that move lower, but this is where being nimble comes in. As we can see, the price drops, but it does not make a new low, indicating that some momentum has dried up.
So, we have this move lower, a pop higher. When this fails to go, even if we had our target down here, on a big news release day, we’re probably not going to hold for the target. I would just get out basically as soon as you have that failure of momentum. Because with news, we want to be trading with the momentum. We want to be capturing the big swings. Once that big swing has subsided, then it’s just time to get out, take our profit, and then we can start looking for other trades.
So, this, to me, right there, would have been the sign to get out. We have basically fails to make a new low or just gets that new low again, and we see that pop higher. This is potentially a consolidation, but we wouldn’t view this as a move lower, simply because the downtrend is in question at this point. We had a very strong move down, but this one was much weaker, and we’re struggling to get past that first low. So, this would be the indication to get out.
If we had placed our order up here in anticipation of that breakout, stop would have of course gone just a few pips above. We can also actively trade this. So, we had this green bar pullback and then a strong red bar, almost like an engulfing pattern. So, we could have gone short here. We also could have gone short on this engulfing pattern here. Those would have both . . . This one wouldn’t have worked out right off the bat, unless you got out very quickly, because it pulled back.
This one would have worked out. You would have ended up getting out down here again. Any of the targets that we’ve discussed in prior videos you can use. So, that was basically the main portion of that move lower from the high, looking for a target down here, probably wouldn’t have gotten filled. But once we had this indication to get out, we could have.
So, we saw selling momentum slowing. Then, we have a little bit of a break to new highs over this area here. So, this is a potential consolidation. We have some breakouts higher, strong shift here. By this time, we’re more than an hour after the news, a couple hours. So these would just be now normal trades.
Mostly the news-related trades are going to be within a couple hours of the actual news announcement. By this time, we are starting to get out of the news releases and could be just affected by other factors in the market. As this breaks higher, you’d be looking for just other trend trading strategies that we’ve looked at.
Let’s see if we can find some other big news releases that have come out. Whether it’s big news or just some big moves, with the big news releases, we can anticipate that they’re coming out because we know the time and the impact of them. But when we also just have some big volatile moves, we can just trade them in the same way. When we have a lot of volatility, we are more free to just get in and out of trades with a bit more ease. So, we don’t necessarily always have to wait for the target.
If we go to last week or previous week, and you can do this, you can go through prior weeks and see how these different events affected. So, Wednesday the 28th, in the Swiss . . . so right about there, we can see the big news release coming out. Make sure when you’re looking at the economic calendar to set it to your timeframe that you have on your chart. That one is offset from mine, but you can always adjust it to fit the exact timeframe you’re operating off of.
We have a news release here, strong buying, move lower. Potential is for still more upside, but we quickly fail into that. So, if we had gone long in anticipation of an upside breakout or a move back higher, once that didn’t materialize here, and we have basically a mini channel breakout. If we were in a long, we would have been looking to get out and sell short on this mini channel breakout. We can just flip our position like that because we’re much more likely to have these big movements which make it profitable for us to get out of a trade and flip into a new one.
Even if we had gone long here in anticipation of this uptrend continuing, cut the loss as soon as this occurs, and then get short. Then, we would have been able to profit from the rest of the downside move. Here, we have a cup and handle-like or snapback type strategy, where this move down completely erased all that, all this prior up move. So, we can look to either take one of our more advanced entries near the top of this consolidation or just wait for a breakout below the bottom of the consolidation and profit from more downside.
Once again, we can be very nimble with these if we set our profit target and it’s down here, and the price starts to rebound quickly. If our target was down here, once this bar starts to rebound quickly, we know we’re in a volatile environment where this could fly all the way back up. So, we’re going to cut our loss quite quickly, as soon as that starts to happen.
The only time we trade new highs and new lows is when we have very strong momentum with us. As soon as that momentum starts to go against us, we can cut our losses and get out very quickly. So, this would be an example of that here. Then, once we’re a couple hours after the announcement, we are just going to go back to our normal. We’ll see volatility goes back to normal. So, we would go back to our normal strategies, which are generally let the price hit your stop or target. But during the volatile times around news, we have a little bit more flexibility. You can get out of your trades a little bit quicker, flip your positions more quickly, just because we have that lot of movement to trade off of.
So, only trade right around news if you have instant execution with your broker and can be reasonably sure of the price you’re going to get. Get out of current day trades before big news announcements. You don’t want to be holding through and then end up taking a much bigger loss than you expected. You can always get right back in once that news comes out.
You should know what big news announcements are going to come out while you are trading. Get in following the news once volatility has subsided a bit, using any of the strategies we’ve covered. You can use your limit orders, target, stops as taught, but volatility gives us more freedom to get out with a profit or cut a loss if the price is running against us. So, as long as that volatility is there, we have that freedom. But as soon as the volatility overall contracts again to what it is on a normal day, that means the news event is over, and we go back to trading in our more conservative way and letting the price hit our stop and target.
Only risk 1% of your account in a pair. That way, even a string of losses won’t significantly draw down your account. Trading involves substantial risk of loss. Only trade with capital you can afford to lose, and make sure you’re testing this out before you implement it in the real world. So, get in there. Look through the economic calendar. Find out when some high- impact news releases are, and then just go through and demo trade it. See how you apply everything that we’ve learned in a very fast environment. Until next time, happy trading.