Trading Breakouts with the News

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Video Transcription:

Hello, traders. Welcome to the News Trading Course and the second module, Technical Approach: How to Trade the News. In this lesson, you are going to learn the final setup that we are going to be using for trading the news, and this is called a breakout, okay? And as simple as it sounds, it’s a little more advanced, because you are only going to use this setup on clean news. This means that if you go to the forex four trade calendar or whatever economic calendar you are using, and you see that at certain times, there are more than two news being released. You are not going to use this setup. The reason is, because if the news that are being released at that time affect one single currency and one news is positive and the other is negative, that’s called mixed news. And you can get spikes high and spikes low. This means that you are going to get filled on your position and then taken out on a stop loss on a very volatile and spiky market. So you are going to look for news that are being released by themselves and that you know you can trade very cleanly.

So, let’s go to the Economic Calendar and I’ll show you what to look for. All right, so this is this week’s news. And as you can see here at 3:30 p.m., we had three news that were coming out on the U.S. Dollar or on the U.S. economy. Now the core retail sales month over month, and retail sales month over month and the import prices month over month. Here all of them were negative, were worse than expected and worse than the previous numbers. But let’s say that you had a core retail sales month over month on a positive number and an import price on a negative number that’s called mixed news, and you can get a very choppy and volatile and spiky market. So you don’t want to trade with a breakout technique or the breakout setup when you have more than two news releases at the same time. What you’re going to be looking for is something like this.

For example, we are going to focus this example on the… I don’t know. Let’s say that ISM Non-Manufacturing PMI. Now you are going to look for a high-impact event news and you are going to see that one hour before that news and one hour after that news. There’s nothing going on the economic calendar and you have only that data coming out. So let’s go to the MT4 platform on May 5th at 5 p.m., to see what happens and how we could have traded the ISM Non-Manufacturing PMI number.

Trading News Breakouts

All right, so on the Euro-U.S. dollar, we are on the 50-minute chart. And as you can see here, we are on May 5th at 5 p.m. We’re going to go to the five-minute chart and then to the one-minute chart. First of all, we’re going to go to, again, the hourly chart to see some levels that might be playing out. So we have this level right here. Let me just use the very first level that we need to breakout from, and we are going to use another color for the horizontal level offer resistance. We are going to use an orange for the levels of resistance and support. And of course we are going to use a black line for the entries. We have another level right here, okay? You can see that we do have some levels in the middle, but the actual resistance level is this one right here. You can see that we spiked up, then we broke it and retested it. This is not an actual level of support. Just look at the time of the day and you will see that there is nothing going on in the markets and this is just lack of liquidity and volatility.

Trading Breakouts

Now the actual levels is this one right here. You can see that we tested with this high, and again these lows that we broke to the down side and retested it as resistance. So this is the levels we are going to be working with. Now let’s go back to the 50-minute chart and let’s go back to May 5th at 5 p.m. Now this is the actual time. We’re going to go to the five-minute chart and then to the one-minute chart. I do it like that, because if I go directly to the one-minute chart, I’m going to have to scroll a lot. Now let’s go back to the Forex Economic Calendar to see what happened and to see what side of the market we were supposed to be taking.

All right, so the ISM non-manufacturing PMI came out better than expected, which means that we have a bullish pressure on the U.S. Dollar, so we are looking to sell the Euro-U.S. Dollar. What we did on the hourly chart on the Euro-U.S. Dollar is wrong, so we are going to redraw our levels but on the downside as support. Here is the hourly chart again. And the first level, we are going to change this one and we are going to use this low right here as our target area. Remember we are trading all the way up here. We were trading all the way up here before the actual news was released. We are looking for targets to the downside. Now the next level or the level that we need to break to the downside for us in order to trade this news is this high right here. You can see that we tested it clearly, then it was retested as support and then here as resistance.

Now what we are going to do is we are going to go to the 50-minute chart. We’re going to go to the one-minute chart. And I’ll show you what you need to do once the news is released. Now the news was released around this time. Now these are the levels that you can see that the news was going to be released at 5 p.m. on this very bearish candle. We already know the result or how the numbers came out, so we already know that we are looking for trades to the downside.

What’s the level that I’m going to choose for a break to the downside that I am going to be able to trade? Remember that the previous high is always a good level to be tested and you can see that. Remember that these are hourly levels so I’m going to change this color to a blue one. The blue level is the level that we need to break in order for us to trade to the downside. This is our target to the downside and this level is our invalidation level. If price goes up, we are not trading this news anymore.

Now you can see that this level was heavily tested here and it was heavily tested right here, and there was a choppy market all around this level, which means that we are going to find some bullish pressure if price broke to the upside. And when price comes back, we are going to find some buyers here. And what we are going to do is we’re going to put on a sell-stop right here, right below this level, because when we break with this level, we want to trade the downside. This is one and a half pips away from this level. And you can see that when the news is released, we actually break to the downside and of course our stop loss has to go above the previous high, which means that we have a 13 pip stop loss. And our target is already decided which is this low right here. So we are getting almost a one to two risk to reward ratio with this trade.

You can see that when the news is clean, what we want to do is we want to trade immediately. We don’t want to wait for corrective moves to the upside in this case, of course, or consolidation periods. Because this news is isolated on the Forex Calendar or the economic calendar and it’s a very clean number, we want to trade it immediately. And the way we’re going to do it is we are going to try, in this case, break to the downside.

Buy and Sell Limits

Now, what I forgot to tell you is that because we are going to be using stops, sell stops or buy stops, we are going to use them on both sides. Let’s say that the ISM Non-Manufacturing PMI came out worse than expected. This would mean that we would have had a bearish pressure on the dollar, because a worse than expected number and a bullish pressure on the Euro-U.S. dollar. Now, this means that because you don’t know beforehand the result of the news, you don’t know the direction of the market yet. And because it’s a clean news, we want to trade it whenever it breaks a level. And you can see that we have a resistance level right here, so we are going to put a buy stop also right about on this level. And I’m going to use the red.

Now let’s get rid of the stop loss right here and I’m going to show you how it’s done. Just before this candle closes, you are going to put a sell stop below the level of support and a buy stop above the level of resistance. Because it is a clean news, you are not going to have spikes up and spikes down before it. It’s going to be a clean move just like this one. And when we get filled on a short position, we are going to delete the buy stop above here and we are going to put our stop loss right here above this high. If prize would have filled us on the long side, we would have deleted the sell stop and put our stops below this low right here giving us a nice 13 pip stop loss for a possible… Let’s see how many pips we would have made for a nice 37 pip win.

So this is how you are going to be using stops, buy stops and sell stops, for breakouts on clean news.

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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