subject: A News Trading Strategy For Proactive Traders [print this page] A News Trading Strategy For Proactive Traders
News trading is intriguing for many traders. As a result most traders prefer to stay out of the market at the time of the news release like the NFP Report or the FOMC Meeting Minutes. But there are traders who have adopted the profession of trading news. However, news trading involves a sense of instant gratification. Within seconds, if you can predict the market direction correctly, you can make a few hundred pips. Now, compare this with most of the day traders who make these much pips in a matter of weeks.Trading news is for those traders who like a lot of action within a short period of time. News trading strategies are based on the fact that before any scheduled news release, market develops a certain expectation about the economic numbers that will be released. When the actual economic numbers are released if there is a wide deviation between the actual and the expected, there will be a knee jerk reaction in the market.Now, suppose you are a risk taker who wants to trade the news despite the fact that many traders avoid trading it. How to go about it? There are basically three ways, you can trade the news. The first news trading strategy involves betting on the market direction and entering the market before the news is released. The second news trading strategy entails waiting for the news to hit the market and then entering the market. The third news trading strategy involves a combination of both the above two strategies. Let's discuss the first news trading strategy in detail.Suppose, you are a pro active trader. You have been watching the market before the NFP Report release and want to make an educated guess on the market direction at the time of the news release. So, you enter the market 20 minutes before the news release time. One advantage of doing this is to avoid the widening of spreads that usually happens at the time of the new release. You made an entry well before the news release time when the spreads were tight. Now you place your bet on the market direction by going long or short. Place a stop 30 pips below the entry if long and 30 pips above the entry if you have a short trade. Now, wait for the news release to take place.News trading is all about predicting the market direction correctly. If you can learn the art of predicting the market direction at the time of the news release correctly, you can make a fortune. If the market doesn't move in your direction, the stop loss will be hit and you are out of the market. In case the market moves in your favor, take profit on half of the position and for the remaining half of the position trail a stop with a 20 day SMA. This will help you capitalize on the move as much as possible.You will be using a 5 minutes chart for this news trading strategy. The amount of risk that you want to take depends on you. You can place the stop loss at 40 pips, 50 pips or more. But 30-40 pips stop loss is better. You had closed half of the position in order to take profit as quickly as possible. This was done to reduce risk. The market can make a sudden u turn and retrace itself. So, you took profit on half of the position as early as possible. The other half position with a trailing stop will capitalize on the market move if it continues in the right direction. Good Luck!
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