Forex news trading: BOA rate decision

Fundamental events always cause a lot of volatility in foreign exchange markets. Interest rate decision events are above the rest as they are key currency drivers both short and long term. Markets often stall and fall into ranges days before these key releases and right after they come out huge moves start. Be aware of that. Of course, general public might be wrong regarding interpretations of these pieces of news, so it is crucial to follow smart money and not be led by emotions of greed and fear. Anyway, if you know how to take advantage of the news trading you can make nice cash in the long term. Let us look at how you could have traded BOA (Bank of Australia) rate decision today and try to speculate whether it will have long term impact or not. 

Since I have moderated my trading news method slightly I did not trade the event. I did expect Australian dollar to rise after the release, but the Central Bank of Australia decided to surprise traders by cutting interest rates. Technically, yes you could see strong demand for British Pound, Euro and other currencies and strong supply of aussie all along. I guess that was the sign for technical traders that smart money knew what the BOA is up to and were buying into the event.

Although, I did not trade the event I want to quickly show you how you could have taken a trade (or trades) in gbp/aud and eur/aud made nice profits. I like these aussie crosses most as they are the most volatile and travel biggest distances when the breaks happen and big moves start. So, let us see how you could have taken a breakout trade in these two pairs.

First, eur/aud. Just before the news the pair was fluctuating in a small range of 1.2744-1.2777. This gave us an area for entry and exit. For a buy you would have placed a buy stop order a few pips above 1.2777 level with a stop below the range of 1.2744 (possibly 1.2740). That would be a stop of forty pips. You should have also placed a take profit target at previous high of 1.2885. I like exiting at previous highs when I buy and previous lows when I sell. So, the news came out and market exploded upwards and reached the target in 7 hours. A little bit over 100 pips of profit! I would say that is a very good risk reward ratio! 

Now, if you wanted to place a sell order just before the news came you simply had to reverse the above mentioned order. You had to place a sell stop below 1.2744 level and stop loss order above 1.2777 level. Then define a take profit target that would have been around 1.2600 level, possibly a little bit higher (1.2610 as I like exiting ten pips before even number). Since the market went up you simply had to remove your sell stop when your buy order was opened and concentrate on your long trade. 

Let us look at how you possibly could have traded gbp/aud pair during the event. Just before the news (3 hours) the pair was fluctuating in a range of 1.5189-1.5161. It means you should have placed  a buy stop above the high of the range (1.5189) with a stop loss below the low of the range (1.5161). What about an exit? One way was to exit at previous high (1.5233). Another one was to exit at mid-point number of 1.5250. Of course, you could still keep the trade, but as you may see you would have lost most of your profit by now. 

What if you wanted to place a sell order? Just reverse the process. Your sell stop order should have been at 1.5161 (a few pips below it) and your stop had to be a few pips above the high of the range at 1.5189 (possibly 1.5195). The most logical place to exit your trade would have been at an even number of 1.5100 (ten pips above that). When you saw that the news was bearish for aussie and your buy stop was triggered you simply had to remove the sell order and ride upwards with the market. 

Looking at the price action now you can also see that these kind of trades can have very short term impact and market may reverse in a few hours, possibly in a few minutes. However, I still find news trading a good way to make extra money with my swing trading strategies. 

Ok, I will finish on this happy note. Be sure to read related articles to learn more on my news trading method. I promise to expand on this in my future posts. 

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

http://www.etoro.com/A41516_TClick.aspx 

Related posts:

10 essential rules for trading Forex news profitably

My top 3 Forex news releases

Short lived momentum reversal trading strategy

When market ignores the news

More on how to trade Forex news

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

More on how to trade news

I promised to write on the topic how to select the best candidates for your trades in my last post. However, I see that I have a shortage of time and will not be able to finish it this week. Besides, I have written a few posts about it and do not want to repeat myself too often. So, this theme will be dealt with in my future post. Maybe I will collect my thoughts and post an article on that next Tuesday. Today I want to add a few thoughts on how you can trade Forex news releases. I wrote a lot on the topic too, so this will simply be an addition to what has been written. Be sure to read my post on the topic with specific rules for trading these macroeconomic events.

With time this strategy of mine has evolved and I use more freedom in trading the news. I often skip even those events that are of high importance if I do not like the technical structure of the currency that should be affected most by the upcoming release. I do it, because I see that not all events (even of high importance create volatility and move prices sharply). 

So, with time I tried to incorporate more of technicals to this fundamental way of trading. I got better with this specific strategy and want to share just a few thoughts about it now.

My technical preferences

I like trading news when currency pairs are stuck in ranges or are consolidating. This creates a much bigger chance for a breakout. If you see a consolidation pattern or a narrow range of a week or more you can be sure that the market has lost momentum and direction and is waiting to be pushed by some fundamental factors. It often happens when news comes out. 

I monitor around 27 pairs every day and know what state they are in at any given time. I wait for the prices to stall, lose direction and start ranging. I also like when those ranges are very small 150-250 pips in size. After staying in this pressed state currency pairs then explode one direction or another. 

Some pairs are known for their natural tendency to stay for longer periods in ranges than others. Canadian dollar is one of them. If you look at the chart of cad/chf pair from the 1^st of March till 25^th of April (2013) you can clearly see how it loves these small ranges and you can also see how it leaves them with explosive moves. The areas that are marked by ellipses indicate moves that were pushed by some kind of news. That�s how Forex pairs leave their ranges or move sharply within them. You want to take advantage of that. Wait for important news from Canada and see what happens when it is released.

Another thing that I have noticed is that when pairs are in larger ranges they tend to move from the very top to the very bottom and then back. They might stop somewhere in between, but tendency is always to seek top or bottom. So, when prices reverse at the bottom they often move up even if the news that comes out is negative. It means market has caught tendency and is shaking off the news. That is a feature of a trending market. 

Knowing this I often place my order only in one direction now. If you have already read my other article on forex news trading you know that I often place buy and sell stops on both ends of four hour chart or use other time frames to position myself for whatever direction market will take after news is released. I tend now to place order only in one direction: in the direction of a tendency that market is going on at the moment. I also place only buy stops when market is at the bottom of the range and sell stops when market is at the top of it. 

One more thing that I want to see in the price action before the news is released is some bias: bearish or bullish. I am sure that the �smart money� is aware of the upcoming direction of a given security (or may even know what news will come) and it is taking position in advance by either accumulating or distributing. When I see that I know that market is positioned for the news in a specific way. Most often than not it does take that direction when news is released! This is another reason why I often (now) put only one order (in one direction) before the release comes. What happens if the market goes an opposite direction? I just skip the move and wait for another one. If you do serious analysis you will see that there usually is at least one big move (often more) during the week where you can make nice money. So, if I missed one move another move is around the corner. Do not worry about the past, think how you are going to use upcoming opportunities. 

A good example illustrating my point would be GDP data from Great Britain today (25^th of April, 2013). If you look at eur/gbp pair price action starting from the 17^th of April when a high in an up swing was made. Right after that the pair started making lower highs and sort of descending triangle was formed. A few attempts of bulls to go up were met by strong bearish pressure and price went down till finally news came out and eur/gbp collapsed. Therefore, I positioned myself only for bearish eur/gbp price action and placed only one order which was a sell stop. And down the Euro went!

Ok, I want to stop there and leave other insights regarding news trading for the future. This topic is definitely not finished. Get ready for more. Have a nice weekend and see you soon.

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

http://www.etoro.com/A41516_TClick.aspx 

Related posts:

10 essential rules for trading Forex news profitably

My top 3 Forex news releases
More on how to trade the news
Forex news trading BOA rate decision

Short lived momentum reversal trading strategy

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

10 essential rules for trading Forex news profitably

I have written several articles which are about fundamental forex news trading. This post is a set of rules about one of my strategies which I use, when economic news is released. I have already written a lot on the subject in my previous posts, but let me expand a little on it today. Here are a few tips for you to dwell on before trading any fundamental information. Be sure to read till the end and find a few other very useful tips as well as my general philosophy regarding trading these fundamental events. I will give you a few examples that really sobered me up in terms of trading these special cases and showed me the way how to catch bigger moves when there is a discrepancy between nature of news (positive or negative) and absolutely different market reaction. Now, let us go to some rules.

1. Decide which piece of information you want to trade

If you want to be efficient in news releases trading system you have to find out which piece of news is the most important one. Almost every day there could be around 15 chunks of news coming from various countries. You could open any forex trading dealer website and find such information (often it is called �calendar�). Most often the news releases are divided in days and majority of providers mark which information is of high, medium and low importance (visit dailyfx.com or forexfactory.com to get all the events for the current and upcoming week). I choose information which is highly important and neglect news which is of low importance and most of the news which is of medium importance. 

2. Now you have to mark support and resistance levels

I base my news trading strategy on breakout of support and resistance, that�s why you have to know and mark those levels on your charts. I do it with all major pairs and their crosses. Support and resistance are places where price came and bounced off. When high time comes you will place a buy stop above resistance and sell stop below the support. 

3. Choose forex pairs you are going to trade for the news

If you want to be successful with this trading method you have to know how to select the best candidates for your trades. You have to decide which pairs are best for you and trade only those pairs. When you look through those pairs, you have to select only those who have the best picture in terms of support and resistance levels. At the time you look at the charts the price has to be in between those levels, preferably in the middle. The best distance from support to resistance is around 80-110 pips. It could vary depending on the pair you are going to trade. Distance can be bigger for gbp/jpy pair and much smaller for eur/chf pair, because gbp/jpy is much more volatile pair than eur/chf. 

4. Now place trend lines

Technical traders know how important trend lines are in technical analysis. So, when you have decided which currency want to trade start placing trend lines. You will have to place 2 trend lines: one 5 pips below support and one 5 pips above resistance 1 or 2 hours before news announcements. Do not place your orders yet.

5. Readjust support and resistance areas

You have to be sure that half an hour before the specific news release you readjust your support and resistance levels. It is highly probable that those levels might be breached and the price is out of those channels. So, you will move a trend line higher if price is above the support and move another trend line lower if the price is below the support. 

6. Define places for orders (long and short) and also stop losses

After you readjusted your trend lines you have to decide where to place your buy and sell stops and also stop losses for those orders. Occasionally I place only buy or only sell orders as sell area or buy area is too far away. If you are a newbie I would not advise you to put more than one order in one direction (one buy and one sell order). You should place a buy stop order 5 pips above your resistance trend line and a sell stop order has to be put 5 pips below your support trend line. Now you also make a decision where to place your stop loss order. You should not risk more than 2 percent of your deposit on any given trade. It does not matter whether it is this specific strategy or any other trading system. 

7. Choose a place where you are going to take your profit 

At this stage you are very close to the news event and you have to decide where you want to exit your profitable trade (if it is going to be profitable). If you are not a newbie you can trade with two positions and close your first one at the closest support or resistance level, depending which direction market will take. I also mark even number levels (you must have noticed that).  Big boys usually take their profits there and so should we. The second position (if you take two positions in one direction) you can ride as long as the market exhausts itself. 

8. Now is the time to place orders

When 2-3 minutes are left before the release, start placing your orders, starting with the level the price is at a greater distance from the level. If the price is 20 pips from resistance and 50 pips from support you place a sell stop below support first. And vice versa, if the price is at a greater distance from resistance you place your buy stop above the level first. After that you place your second order. By now the news might be hitting the market. 

9. Readjust your open orders

When the news comes one of your orders is opened. What do you do now? You should also move your stop loss order below/above 15 minute breakout candle as soon as you can. This is how you reduce your risk and increase your profit. At this stage you also remove the order that was not opened. 

10. Exit your trades

One way you exit the market is when your take profit is reached. That�s when your platform should close your order automatically. Another way is when your stop loss is hit. If you have been moving it in the direction of the move it is in the profitable area and you exit your trade with profit. It is also possible that when news is released, you have choppy price action and your stop loss order is hit. So, you lose the amount you have pre-planned. You then wait for another opportunity to trade news. 

My general philosophy about news

When news is released I want to see how market reacts to it. It often happens that very good news comes and the market completely ignores it. It shows that there is a prevailing opinion among big market dogs where the price should be headed. The same can be said about bad news. When tendency is present market will shake this news off. 

When I started trading Forex in 2004 I remember one particular instance that shocked me and turned around my thinking regarding the question. It was Friday and Non Farm payrolls had to be released. These were times when market would wildly react to the data and you would often see 200 pip moves in a matter of 1 second. Sometimes even 300 pip move! Now, that particular Friday the news came and it was extremely good. Job market created twice as many jobs as was expected and it was the highest number in four or five years. To my greatest surprise US dollar rallies a little and then sold off. I lost on the trade. However, I gained much more than I lost. When you see these things happening, just trade in the direction of the market. Leave your opinions and adopt the opinion that the market has. You will win in the long run.

I saw these kind of situations repeat again and again. Most recently I saw it happen to New Zealand dollar. On the 13^th of March (2013) there was interest rate decision from the Bank of New Zealand. The governor did the �currency war� talk by expressing his wish to see New Zealand dollar lower. The market reacted initially and the kiwi fell. However, the next day it rebounded and proceeded to making new highs for the year. 

Conclusion

As you may see there are a lot of ways to trade fundamental news announcements. It is important to follow a strict set of rules. It is likewise essential to understand that even the news that is of high importance often has short term impact and market often goes on in the direction it wants. So, if you intend to trade these events be sure to watch how market reacts to news. You might catch pretty big moves and make nice cash as a result. 

Ok. I hope you benefited from the post. I would continue the topic of different market states in my next post. Hope to do it very soon! If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

See also:

Breakout

Short lived momentum reversal trading strategy

Learn trading

Day trading tips

How to make money trading

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.