This post is dedicated to my news trades, as they are not box trades, but I do many of them. Throughout the course of my year trading high volatility reports, I’ve come to notice similarities between my winning trades and losing trades, and so I make much better judgement calls. Keep in mind that this is a highly subjective topic, so I am only discussing my experiences and how I personally trade it. Now, in bullet point form:
1) Just like a regular trade, you can break down a news trade into its’ individual components. I will discuss each component below:
a) Risk On/ Risk Off- This is what I believe to be the most important component, because knowing whether the market is risk on and risk off can easily change the direction of your trade. Markets tend to be Risk On when general positive macroeconomic news causes large moves in the market (weakened dollar), and generally negative macroeconomic news causes minimal gains in the dollar. Another way to determine if markets are truly Risk On/Risk Off is by market tempo- that ATR indicator. Not all upswings in EUR/USD are Risk On after all, so you look at that ATR to decide whether or not this current upswing is out of the norm, as Risk/On behavior tends to be like a tidal wave- huge surges.
b) Knowing the behaviors of each report you like to trade. I trade very few reports, but everytime I trade, its the one I’m very familiar with. Certain reports tend to have whipsaws. Certain reports rocket only one direction, and certain reports only cause a slow move in either direction.
c)Expected/Realized prints: For every report you will see the expected value, the previous value, and the actual print. When you look through tons of previous reports, you can start to make conjectures on which “expected values” are on the high and low side (higher and lower expectations). You should already start to predict “what will happen if” of the three possible outcomes- Print is as expected, better than expected, worse than expected.
d) Initial Market Reaction- This occurs within the first few minutes of the print, and is very critical in your predicted behavior. An ill-timed entry will easily stop you out if you ignore this component.
e) A solid list of plans. Before the print, you should already have where to enter and exit, your lot size, your stops, and your take profit. You should have a plan based on current market behavior, whether or not you will trade in the initial market reaction, and what to do with all 3 possibilities of the print that could come out.
So, what happens if something happens that is not part of your plan e) ? DON’T TRADE.
Bahh. I’m busy at work right now, but I will add in an example of a news trade using a recent NFP report.