Below I will give a few tips on how you should act around news times.
This is the most important part of dealing with the news releases.
Each week or maybe even each day just have a look at what news is due out and the expected impact it is due to have on the market.
When you are aware that a release is due out and that it is due to have a medium to strong impact upon the market it’s a good idea to actually watch what the actual number comes out at and then compare this to the expected number.
If there is a positive deviation the expectation is for the currency to react in a positive way and increase in value.
The opposite is true if there is a negative deviation.
If the number comes out the same as the expected we can expect little market reaction.
So if you are preparing to sell a currency and the news comes out with negative deviation you may have even more confidence in your planned trade because as well as having technical’s on your side you now also have short term fundamentals.
If you are looking to sell and there is a positive deviation you don’t necessarily have to abandon your sell trade because even though news propels price in one direction it can’t keep on going in that direction forever and the main thing that will halt its march is Support or resistance.
If you are looking to sell off resistance and that level is a long way from the current price even if the news pushes price up, the further away your entry level is from the pre news price the more chance you have of the trade still being successful. This is because as price starts to move up traders are now looking for places to take profit and also for a price at which the currency would become expensive and so encouraging sellers back into the market.
As a guide, and this of course depends on the type of news coming out and the level of deviation.
I would say that if your entry level is 50 – 100 pips away from pre-news price it is still a good probability trade providing that all the original reasons for entering the trade are still intact.
That being said, erring on the side of caution is the best policy as you will become better at reacting to news with more experience in front of the screen.
So never trade against news or even during a release unless you are 100% confident in what you are doing.
As you spend more and more time observing these announcements and their impact on the market along with other economic events you will become much more confident in both reading them and trading them.
Next: C.O.T. Reports