News Trading Guide Series 3 - How To Protect Your Trades From News Spikes With Trailing Stop

The impact or outcome of an economic news event can cause great anxiety, nervousness, panic & excitement. The result of this is the sharp spike, and whipsaws that either adds to the profit or drains the account in few seconds. This article reveals a solution on how to guard yourself from such occurrence, and profit from it.

FACT: A news outcome can cause a spike in a currency to move sharply from 60 to 100 pips in seconds. That is what some traders struggle to get in days and weeks. This makes news trading extremely beneficial, and at the same time very risky

The question is why does this happens? Simple - the global market always reacts instantly to heart breaking or happy cheering news about the status of a country's core economic indicator, which is used for investment decisions. The two (2) major decisions are to invest or to pull out. For example, during the Swiss Franc Euro Capping episode in January 2015, the reaction world wide was extremely drastic up to the extent that major brokers, and banks were seriously hit.

FACT: A HotForex trader (Ayodele Odingboro) made a gain of 1,355pips while trading the CHF pair during the Swiss Franc Capping Episode despite the extreme spike.

The following are certain to happen after figures or decisions are released from an economic news event:

1. Market moves to the direction of the outcome of the news release (one way instant direction).
2. An indecision may occur leading to whipsaws (sharp up and down movement) hitting both SL instantly.
3. Nothing happens, and price continues on its natural path.

HOW TO GUARD YOUR TRADES FROM NEWS SPIKES

One of the best tools that can protect your account from news spikes, and at the same time profit from it whether the trade is going against you is Trailing Stop. I want to state this clearly - there is no other tool that can do a perfect work than the Trailing Stop Tool. Any news trading EA or system that does not integrate trailing stops is highly deficient.

What Is The Best Amount Of Trailing Stop To Use?

All news event comes with different impact. Some have a usual pattern like the UK MPC Rate Decision, GDP Reports, Unemployment Data, CPI's, & some speeches. They often manifest with sharp or steady spike. Therefore their trade settings differs.

1. For high impact news trading or events that causes lots of volatility in the market, use high or medium trailing stops. The idea is to capture the fast movement of the market while giving it some fair distance, and then later adjust it upwards until your TS is much closer until it either reaches your TP or price returns back hitting the TS. 
   
2. For events that comes with slow paced movement at the beginning like speeches, wait for price to advance gently until you are sure of its direction. Then use a medium size TS until the event is over.
3. All other events use medium TS. Do not use very tight trailing stops because immediately your order is hit, the TS quickly activates, and the tendency for price to retrace, and hit the TS and then reverse back is very high. So capture a bit of it; leaving a safe distance as it advances, and then as soon as it picks up momentum you can adjust it to get closer.
4. For events that has a reputation of creating whipsaws (fast up and down movement), which is capable of hitting both orders (BUY/SELL), then you can use tight trailing stops. The essence of this is to grab the best possible pips from both sides. There are cases where this happens in the speed of light. You only see the effect in your account journal. It is most times beyond our control.

Additional Tips

High Trailing Stops - 75 to 100 pips

Medium Trailing Stops - 50 to 65 pips

Tight Trailing Stops - 30 to 45 pips

The above pip value is for Five (5) digit pricing brokers. It is also applicable to Four (4) digit pricing brokers.

Furthermore there are no fixed value for Trailing Stops. You need to closely monitor and understand how a currency reacts and come up with the right Trailing Stop that can manage the trade during the impact.

Quantina News Trader EA Ultimate 2015 (Auto & Manual) trades the news with a customized trailing stop feature which can be modified to users taste.

Image "Traveling at Speed of Light courtesy of digidreamgrafix" / FreeDigitalPhotos.net

NEWS TRADING

Welcome to our News Trading guide, and tips.  Information posted here is not a recommendation to BUY or SELL any currency. Traders should be aware of the extreme volatility in News Trading, and therefore trade the news with serious caution. Please see our Disclaimer Notice.

1st Week of September 2018

Welcome to the  month of September. Last month was quite a very hectic one for us and also one of the best as we made a new record in our trades. 

We've got some crucial events lined up for the week, which will get the new month starting off with lots of sparks in the market. We will be paying close attention to events in the US, Canada, UK, and Australia. However we would likely not trade the Canadian Interest Rate decision because we expect the BOC to keep rates unchaged.

As usual we expect some great amount of volatility during these events which will provide the needed opportunity to make some good amount of profits if we get the desired outcome.

Join us and get set for action. Wish you a pipfull outcome this week.  NB: See our summary analysis of our news trading results. Click Here

Tuesday Sept 4th, 2018 [AUD Interest Rate Decision] Event Time: 12:30am EST | 5:30am GMT +1

The Reserve Bank of Australia will unveil to the public the decisions reached by the RBA Board on interest rates. A hike in interest rates will be very good for the Australian Dollar as the price of AUD will spike up greatly. But if we get a reduction in interest rate then the price of AUD will fall sharply.

News Trade Type/Method: [High Impact/Spike] Market Order; Pending Order; Straddling Past Review: Interest rate was last changed from 1.75% to 1.50% in August 2016.  Recommendation: BUY AUD if the RBA increases interest rate to 1.75%. SELL if interest rate is reduced downwards to 1.25% Recommended Pairs: AUDUSD, EURAUD, AUDCHF, AUDCAD, AUDJPY   Available on FXTradeCity News Trading Signal Service: **YES (Subscribe Here...) **Recommended News Trading Tools**

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Wed, Sept 5th, 2018 [UK Services PMI]  Event Time: 4:30am EST | 9:30am GMT +1

The UK Services Price Purchasing Manager's Index  for the month under review is being forecasted at 53.9. A better outcome will give the British pound the needed boost for buyers in the market. But a worse than expected PMI will be the reverse.

News Trade Type/Method: [High Impact] Pending Order; Straddling Past Review: The previous outcome was a little bit disappointing though the PMI stood above the 50.0 threshold.     Recommendation: BUY GBP if the PMI comes out better this time at 56.4. SELL if the result comes out lower within 51.4.   Recommended Pairs: EURGBP, GBPUSD, GBPJPY, GBPCHF, GBPCAD Available on FXTradeCity News Trading Signal Service: YES (Subscribe Here...)   **Recommended News Trading Tools**

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Thur, August 6th, 2018 [US ADP Non-Farm Payroll]  Event Time: 8:15am EST | 1:15pm GMT +1

A total of 188,000 jobs is being forecasted as additional jobs created in the previous month by the US Automatic Data Processing Inc. Though the data is more of a mimic of what to expect, the market still takes it seriously. A better than expected result will position the market for better expectation in  Friday's NFP event. But a worse than expected result may create a negative sentiment on the USD.

News Trade Type/Method: [High Impact] Pending Order; Straddling Past Review: This economic indicator has been quite impressive taking a look at the events since this year. The recent event came out positive also with an upward review of July's negative figure.    Recommendation: This event has a history of data revisions after the actual result is released. I strongly advise to hold on for a few minutes to wait for revisions before taking any decision due to counter effects. BUY USD if the result comes out at 238K. SELL if the result out lower 138K Recommended Pairs: GBPUSD, EURUSD, USDJPY, USDCHF, USDCAD Available on FXTradeCity News Trading Signal Service: YES (Subscribe Here...)  **Recommended News Trading Tools**

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Friday, September 7th, 2018 [Canada Empl. Change]  Event Time: 8:30am EST | 1:30pm GMT +1

The Canadian job market report has been scheduled along with the US NFP which makes it a touch one to trade. A better than expected result will be greatly welcomed by the market which will send a BUY signal for the loonie. However, if we get anything worse than the forecast then the reverse will be the case.

News Trade Type/Method: [High Impact/Spike] Pending Order; Straddling Past Review: The Canadian Job market seemed to have picked some steam following two (2) consecutive positive outcomes. A repeat of this today may send a signal of stability in Canada's economy.     Recommendation: BUY CAD if the Employment Change comes out at 35.1k, and Unemployment Rate remains the same at 5.9% or reduces to 5.8%. SELL if Employment Change comes out lower at -24.9k, and Unemployment Rate increases to 6.0%   Recommended Pairs: GBPCAD, EURCAD, CADJPY, CADCHF, AUDCAD Available on FXTradeCity News Trading Signal Service: YES (Subscribe Here...)   **Recommended News Trading Tools**

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Friday, September 7th, 2018 [US Non-Farm Payroll] Event Time: 8:30am EST | 1:30pm GMT +1

This is the main event for the week with great expectations and sentiments especially as we have the Canadian Employment Data coming up same time. The market seems priced in over yesterday's ADP's report so any surprise today will add to the heat in the market.A better than expected result will boost the USD. But a worse than expected result will be the reverse.

News Trade Type/Method: [High Impact/Spike] Pending Order; Straddling Past Review: The US Job Data has had much better upward reviews than actual results in the main event. Previous event came at negative against the forecast but with an impressive upward review of July's figure.    Recommendation: This event has a history of data revisions after the actual result is released. I strongly advise to hold on for a few minutes to wait for revisions before taking any decision due to counter effects.   BUY USD if the Employment Change comes out at 261k, and Unemployment Rate remains the same at 3.9% or reduces to 3.8%. SELL if Employment Change comes out lower at 121k, and Unemployment Rate increases to 4.0% Recommended Pairs: GBPUSD, EURUSD, USDJPY, USDCHF, XAUUSD Available on FXTradeCity News Trading Signal Service: YES (Subscribe Here...)   **Recommended News Trading Tools**

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These are the high impact news trading tips and guide for the 1st Week of September, 2018. Feel free to leave your comments, inquiries, and suggestions.

 

News Trading Guide Series 2 - When Deviation Goes Wrong

This series reveals factors and deep secrets why you should not depend SOLELY on the outcome of a news event to BUY or SELL because of certain factors that makes deviations useless whether they are met or not.....

One of the major key decider to BUY or SELL after a news release is the DEVIATION. The deviation is the difference between the FORECAST & the ACTUAL result. The outcome of the measurement of the difference of the actual result to the forecasted deviation is what triggers either a Spike (extreme sharp movement), Slow Action, No Action, or Delayed Action. So it is expected that when a deviation is met you take the next action, but this is not true all the time time. See real scenario below:

On 12th March, 2015 the market waited eagerly for the US Core Retail Sales news release. The previous figure was -0.9%, and the forecast was 0.6%. The deviation was 0.5%, meaning that the USD should be sold if the result falls 0.1% lower or the USD should be bought if the results is 1.1% or higher. Economists were of the view that the result would be positive taking into consideration the good outcome of the NFP, which took place 6th March 2015. This is true since both components are correlated. However the results came at -0.1% and previous figure was revised downward to -1.1%. This was an extremely negative result for the US Core Retail Sales m/m and our best guess is SELL the USD but that decision didn't go well. See what happened below.

Source: www.forexfactory.com CLICK TO ENLARGE

The above illustration do not occur always but lots of traders especially retail traders are victim of this, and many never know what went wrong. A clear deviation against the USD went the wrong direction.

CAUTION: Do not react too quickly to a news release....

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How Is Deviation Derived

Deviation is sometimes derived through a broad survey of a fundamental component like spending habits or job availability from economic experts, financial institutions, stores, consumers, manufacturers, e.t.c. The data collated from these survey is statistically computed to derive a possible deviation. Deviations are also derived from the collation of previous actual results of an economic event against the forecasted figures over a period (monthly, quarterly or a timeframe determined by the issuing financial authority).

How Deviations Are Used In Making Trade Decisions

It's simple as BUY/SELL when a deviation is met or exceeded.

For example: 

March 6th 2015 - US Nonfarm Payroll Employment

FORECAST - 241K

PREVIOUS - 257k

DEVIATION - 70K

Trade Decision Formula: 

BUY = Forecast + Deviation = 311K and above (result is bigger than the previous)

SELL = Forecast - Deviation = 171K (result is smaller than the previous)

See outcome below (Actual = 295K)

US NFP March 6th, 2015

In most cases when the Actual is considerably bigger than the Previous figure but not equal to the expected deviation, the market still reacts. Even at 1% difference in some cases market can overreact. This is common for very high impact news release.

CAUTION: Do not focus or trade any news event that has a statement or press statement few minutes or immediately after the news release. Speeches especially statements from Central Bank's Governors can cause the market to react and reverse or continue it's momentum. A particular news release from the UK came out bad, and the GBP fell immediately but rose up sharply few minutes during Gov. Carney's Speech after the rates were released. Lot's of traders got stopped out with losses.

NZD Cash Rate Actual Result did not meet Deviation of 3.75% to BUY or 3.25% to SELL

Source: www.forexfactory.com

 

Reaction of Gov Wheeler's Press Conference despite a stalemate in the actual result

Deviation Met But Market Moved Wrong Direction - What Went Wrong?

Like i said earlier that the deviation could be met but the market still moves to the "wrong" direction. The following reasons explains why this happens:

1. Contrary press statement overruled the actual results or painted a positive outlook on the currency. In some cases we have seen press statements that gives hope of a perceived failing economy or intention to hike rates, and since this is coming from the highest authority, investors are keen to change their minds.
2. Insider tricks by government and financial bodies. It might surprise you but this happens. There was a time that the figure for a very high impact news release came out negative for the US. Few minutes later the market rebounded sharply in favour of the USD, and we found out that the results were changed citing reasons that the released results was not correct. Of course you can bet something funny must have happened!!!!!. Also there are bigger financial investors who are privy to the result before the result. They are capable of spurning the market to go one side, and then chop off their positions through counter trades.
3. Revisions. This is very common and usually causes serious market counter reaction despite the actual result being released.
4. A strong psychological confidence on a currency can cause the deviation to hold less meaning.
5. Future expectation of a currency's value or economic outlook. If for example the European Union has agreed to tight rates or announce a date for QE then the deviation of the news release against the upcoming action would be meaningless.
6. Mixed actual results from multiple news event. For example the deviation to BUY the CAD Employment Change might be met but if the CAD Unemployment Rate is extremely poor then a negative reaction might occur.

These are some of the reasons why deviations can mislead. It is very important to understand the dynamics, politics, and pulse of the market during news trading. A lot can happen right under your nose without your knowledge, which can be very devastating.

How To Protect Yourself

1. Always use stoploss
2. Do not add to positions excessively even while the deviations are met.
3. Always watch out for revisions as they can cause serious counter reaction.
4. Do not trade with too large volumes especially for account with high leverage.
5. Take your profits quickly or use trailing stops

While all the above tips would help there are still situations beyond your control because of the big personalities involved in news trading that has the power to turn things around

We appreciate sharing your experience on issues like this on our comments column. Wish you success all the way.

Image (Disappointed Businessman Looking At Laptop) courtesy of stockimages / FreeDigitalPhotos.net