Let’s continue examining the peculiarities of news trading
The fact that the economic calendar is always at hand and the trust in fundamental analysis not supported by a deep understanding of the matter make news trading quite prioritized. In our previous article, we examined a few ways for a financial asset to behave ahead of important macro-statistic releases, results of central banks’ meetings or officials’ statements. Just to remind: we spoke about consolidation, buying (selling) on rumours and, finally, unexpected news. We’ll set aside the latter case immediately: there may be force majeure at Forex and stop orders are obligatory unless you want to see your deposit melting away.
AUD/USD was being sold out actively at the beginning of July as a result of the expectation that RBA would lower the key interest rate. The reserve bank did do so, but the Aussie’s reaction was opposite to what is usually expected: it soared after a short-term fall. So, the principle “sell on rumours, buy on facts” was realized. Once the central bank announced its decision, bears started closing positions. The downward movement was explained by the unprepared traders’ desire to profit from the news although it had been already “discarded”, actually. To make sure it’s true, one needed to look at the left part of the chart.
The best solution in a situation where an asset is falling/growing ahead of an important event is entering a position opposite to the initial market movement at the level of this movement’s start. In the case of the Aussie, the return of the quotes to the bar’s opening allowed forming a long position. A protective stop order shall be placed at the fluctuation minimum. Take profit is determined by use of the harmonic trading patterns.
News trading in AUD/USD
If the central bank gives the market more than wanted, an asset may continue its movement in the same direction after an important event took place. For example, EUR/USD grew actively at the beginning of June, expecting that Mario Draghi wouldn’t hint at softening the monetary policy. But the ECB, on the contrary, upgraded a forecast for inflation and GDP while its president spoke of the strength of the labour market and domestic demand. In the end, the euro moved to the north after a small decline. Just like in the case of the Australian dollar, the return of the EUR/USD quotes to the bar’s opening was a reason for buying.
News trading in EUR/USD
A position could be formed a bit earlier or later, based on the Fakeout-shakeout pattern. A trader familiar with this pattern was supposed to notice the short-term consolidation, the false breakout of its lower limit and the return of the pair to the middle and then to the upper limit of the trading range. That’s where long entry points are located, according to the theory.
If an asset isn’t growing or falling ahead of an important event, but it is consolidating instead, a trader should place two pending orders: to buy (near the upper limit of the trading range) and to sell (near the lower limit). Protective stop orders are placed at the extremums of the previous fluctuation while prospective profits are determined using the targets of harmonic trading patterns. The way it was in July when Jerome Powell gave a statement to Congress and hinted at a federal funds rate cut.
EUR/USD’s reaction to Powell’s statement
So, news gives us a wonderful opportunity to earn. We only need to know how to form our trading strategy right.
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Price chart of EURUSD in real time mode
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