(S) News Straddle Place orders around the market price and wait for them to get hit

Transcription

1 {CLICK} In the first video, we taught you the basics of Trading the News and we even went over a couple of examples. In this video, we ll go into more strategies that you can use when Trading the News. {CLICK} As a general rule, {CLICK} trading into news announcements is a high risk endeavor. To help mitigate that risk we should {CLICK} always have a trading plan. Trading without a plan going into a news announcement can have disastrous implications. Strict discipline is necessary to implement a news based trading strategy successfully. {CLICK} We must be prepared to abandon our trade idea swiftly if the market is not adhering to our pre conceived scenarios. {CLICK} We have designed 7 strategies to trade the news, four basic strategies, two slightly more advanced and one scalping strategy. In order to learn how to trade the news effectively, we suggest you focus on the basic strategies first. As you become more proficient at implementing the basic strategies, you can start to integrate the slightly more advanced strategies, and eventually, learn to integrate all seven into one master adaptable trading plan. {CLICK} These strategies are most effective with the larger releases such as Non Farm Payrolls and FOMC meetings. Types of strategies (S) News Straddle Place orders around the market price and wait for them to get hit (S) News Reversal Wait for the volatility to subside and then trade the reversal (S) Trend following Entering before the release (S) Trend following Entering upon support/resistance (A) Dual Spike Breakout Establish high/low from the initial spike, play a break out (A) Initial Spike Fade Fading the initial spike, but entering sooner than the News Reversal (Scalping) Pre-Release Calm Scalping at support and resistance levels during the few hours before the release

2 {CLICK} In the first video, we talked about two types of strategies you could use in trading the news. {CLICK} The first was a News Straddle strategy. This is where you identify a price point above the current market to go long and a price point below the market to go short and let the market decide which way to trade. That type of strategy utilizes the new breakout pull back order entry orders. {CLICK} The second strategy was the news reversal. This strategy waited for market to reverse after its initial surge, then a trader would enter when the price reaches the original price before the release. This strategy tends to wait for the volatile conditions to calm down. In this video, {CLICK} I am going to introduce two additional simple strategies to use around news events. Later on in this video, we will then discuss {CLICK} two additional advanced strategies and {CLICK} a scalping strategy. But first, the two simple strategies both revolve around following the current daily trend in prices. {CLICK} #1 Trend Following (entering pre-release) Pre-Release Trend Following Strategy Rules: 1) Use a daily chart and plot the 10 day SMA 2) Determine the direction of the trend 3) If the trend is up and the current candle is completely above the 10 day SMA, then buy; 4) Enter your trade 5 minutes before the news release {CLICK} The first strategy is a simple trend following strategy where {CLICK} the trader enters the trade BEFORE the news release. {CLICK} As I mentioned before, the challenge with trading the news is getting in and out at your desired prices. {CLICK} One way to mitigate that risk to create a market order before the release. The problem is once the news hits the wire, there is really no way to tell which way the market will move. No way to know if you need to quickly exit the market, your order will be filled at the level you specified. {CLICK} The advantage to getting in before the market is that one of your orders will be filled as expected and if you win half of your trades, you only have to deal with the slippage on the exit of the losing trades. Also, trading with the FXCM no dealing desk gives you a better chance of a quality fill than using other FX firms offering similar order execution because of the number of banks giving markets to FXCM traders. The question is, do you buy or sell and where do you place your protective stop? Many traders who use this strategy assume that trend will not change, so if the trend is up, they will buy and if the trend is down, they will sell. One can use a simple 10 day moving average to determine this or use some of the excellent resources available to FXCM clients at DailyFx, or for live clients, Daily FX+, where you can find the opinions of numerous analysts along with the opinions of the market offered by our

3 automated trading signals, analysts in the technical analyzer, or through the SSI. The idea is to develop a consistent opinion of the direction of your trade based on the market to that point rather than just guessing. {CLICK} On May 8, 2009, the EUR/USD is trading above the 10-day moving average. {CLICK} Traders buy at a few minutes before the release and place their protective sell stop at {CLICK} They also place their limit order to take profits at twice the distance of the stop. Since the stop distance was 55 pips, {CLICK} the trader looks to take profits at 110 pips or After the release, the EUR/USD market experiences its typical volatility, {CLICK} then begins to move upward and hit our take profit level for a 110 pip gain. The rationale behind this strategy is that that the market has already started to prepare for the news release and that release will further push the market in the direction it is already going. #2- Trend following (entering on support/resistance)support & Resistance Trend Following Strategy Rules: 1) Use a 60 minute or 4 hour chart 2) Draw support and resistance lines on the chart 3) Determine the direction of the daily trend 4) If the trend is up and look for buying opportunities near the support line; if the trend is down, look for sell short opportunities near the resistance line Enter your trade when the price reaches your trend line {CLICK} In this strategy, we identify support and resistance levels on a 1 hour chart and look for trading opportunities in the direction of the daily trend. Then, we wait for the news release to occur and see if prices move towards pre-defined levels. If the move does occur, look to enter short at resistance with a stop just above your trend line or look to enter long at support with a stop just below the support level. Set your limit at 3 times the distance of your stop which creates a 1 : 3 risk to reward ratio. {CLICK} Here is an example from the NFP release on January {CLICK} On a daily chart, we have a series of {CLICK} lower highs and {CLICK} lower lows, so we look for a short sell opportunity. Just prior to the release the trader notices on a 1 hr chart, a resistance trend line connecting the December 29 high and the January 8 high. In fact, the current prices are fairly close to {CLICK} this resistance line, so it seems likely prices will reach this line upon the release. {CLICK} As the trader waits for the release, the resistance line crosses near With the prices close to this line, we may get a spike up above. So we wait to see if prices pierce the line, then drop back below on a 5 minute chart.

4 {CLICK} Sure enough, as the news is released, prices spike up {CLICK} to a high of and the 5 minute candle closes back below the resistance line which rests at At this point, we will place an {CLICK} entry order to short at {CLICK} with a stop 10 pips above the recent high, or for the stop. This is a stop distance of 39 pips. Since we wish to maintain a 1 : 3 risk to reward ratio, we look for a profit target of 117 pips or three times the distance of our stop at {CLICK} On the next candle, the price does move up to the resistance line again and our entry order is triggered at to go short. {CLICK} Within 15 minutes of the trade getting triggered, the price does reach our profit target. #3 Dual Spike Breakout The strategies rules are simple. 1) First, after the NFP release, wait 15 minutes, or for 3 candles to close. 2) Then, note the highest price and the lowest price of the 3 closed candles. 3) Place an entry order to go long at the highest high of these 3 candles. Place an entry order to go short the lowest low of these 3 candles. 4) Once one order is triggered, take profit at twice the distance of the high-low channel The next two strategies are more dynamic so you must make some calculations after the news is released. The first advanced strategy to discuss is {CLICK} the Dual Spike Breakout. Due to the reduced liquidity around news events, volatility increases tremendously, leaving spikes for a few minutes after the release. We use a 5 minute chart and focus on Non-Farm Payroll release. The strategies rules are simple. 1) {CLICK} First, after the NFP release, wait 15 minutes, or for 3 candles to close. 2) {CLICK} Then, note the highest price and the lowest price of the 3 closed candles. 3) {CLICK} Place an entry order to go long at the highest high of these 3 candles. {CLICK} Place an entry order to go short the lowest low of these 3 candles. 4) {CLICK} Once one order is triggered, take profit at twice the distance of the high-low channel Essentially, with this strategy, we look to place a breakout trade at the price extremes of the spikes on the news release.

5 {CLICK} On February 6, 2009, the Non-Farm Payroll was released. The trader looks at a 5 minute chart and waits for the 3 candles after the release to close {CLICK}. Once that occurs, the trader makes a note of a high of and a low of A long entry order is placed at {CLICK} and a short entry order is placed at {CLICK} The trader waits for one of the orders to trigger. {CLICK} About minutes after the orders were placed, the price triggers the long entry order and the trader is long at The trader leaves the other short entry order in the trading station to {CLICK} act as the stop. In this case, the distance between the entry and the stop is 74 pips. The trader looks for a profit target of twice the distance of the stop, or 148 pips. {CLICK} We anticipate taking profits at {CLICK} Later in the day, the profit target was reached and the trade was closed. #4 Initial Spike Fade 1) Wait for the first 5 minute candle to close 2) If the price is near the spike high or low, then fade the move by trading in the opposite direction try to enter as close to the high/low as possible 3) Place a stop 15 pips above the high for a short trade or 15 pips below the low for a long trade 4) Take profit at 2 to 3 times the distance of your stop. {CLICK} The second advanced strategy is similar to the Dual Spike Breakout in that you make note of the initial spike in price. In the Initial Spike Fade, we use a 5 minute chart. After NFP release, the market usually spikes one way or the other, representing price extremes. {CLICK} Once the first 5 minute candle after the release closes, {CLICK} we are going to enter the trade as close as possible to the spike high for short trades or we ll try to enter as close to the spike low for long trades. {CLICK} On these trades, we want to have our stop placed 15 pips on the other side of the spike extreme. For example, if the market spikes up, we look to sell short as close to the top of the spike as possible. {CLICK} We will want our stop placed 15 pips above the spike high. If the market spikes down, go long (buy) with a stop placed below the spike. We wait for the initial candlestick to close (referring to the spike high or low) and enter on the next candlestick. {CLICK} If a spike high occurs, we wait for that candlestick to close and enter an opposing position (short) trade on the next 5-minute candle with our stop order placed just above the previous candle's spike high. [The visual is listed below where you would enter on the open of then next candle first visual is showing just the long blue candle enter on the open of the next candle. Then animate the rest of the candles to the right] {CLICK} On March 6, 2009, NFP is released which creates a spike upward. {CLICK} As the first 5 minute candle closes, the closing price is near the high price so the trader decides to fade the move. This means the trader will look for prices to retrace the strong up move it just made. {CLICK} The trader enters at with a {CLICK} stop 15 pips above the high at This is a stop distance of 19 pips. {CLICK} The trader looks for 38 pips of profit for a target of

6 Just a few minutes later, the profit target is reached and the trade is closed for a profit. #5 Pre Release Calm Rules for trading : 1) Use a 5 minute chart 2) Beginning 12 hours before the release, identify levels of support and resistance 3) Sell at resistance; buy at support {CLICK} In the hours prior to a major release, the market often stagnates between a {CLICK} support and resistance level. In our opinion, this time may offer the best opportunity for a {CLICK} simple scalping strategy. The reason is that most market participants are waiting for the release so trading volume is light and movement is small. While small movement is not really the ideal situation for a scalper, the existence of precise support and resistance levels are. This is what the calm before the release typically creates. The reasoning is there are large orders on either side of the range and the market does not have the volume to penetrate either of these levels. {CLICK} Price will bounce between the two extremes until the actual release. To be an effective scalper, you must possess tremendous discipline. {CLICK} Once the support and resistance levels are defined, you would look to {CLICK} sell at resistance with a {CLICK} stop just above resistance or {CLICK} buy near support with a stop just below support. {CLICK} You must exit immediately on any penetration of the pre defined range. {CLICK} In early April 2009, we had a set up for a pre-release calm. On April 2, 2009 the ECB was scheduled to release their interest rate decision, then 24 hours later, the NFP was scheduled to be released. Since both of these announcements had an ability to move the EURUSD, there would be limited trading activity between these two releases. Even without a major release on the day before, oftentimes, the 12 hour period prior to the release of NFP can provide a good environment for this strategy to work. {CLICK} Several hours before the NFP was scheduled to be released, a trader noticed this trend channel forming on a 5 minute chart. About 3 hour pre-release, the price approached the resistance line offering an opportunity to take a scalping trade short. The trader opened a short trade at where the resistance line rested. In a scalping trade, you generally look for a small number of pips which could be as small as pips. There were a couple of good scalping opportunities as the prices bounced around near the resistance line prior to the NFP release. A trade could have easily picked up pips on 2 to 3 trades. [fill the chart out several more bars] In scalping trades, since you look for a small number of pips to profit on, many times your stop is going to be wider than your take profit level. However, if the market doesn t quickly push the price in your favor, that could be a sign the trade won t work out. {CLICK} The foregoing is a sampling of strategies to use when trading the news. Remember, due to the increased volatility around news releases, {CLICK} there are additional risks to trading news events which is capturing your entry and exit prices you desire. {CLICK} Under FXCM s no dealing desk model we welcome all types of traders including news traders and scalpers. We hope you found this video helpful and {CLICK} we encourage you to attend a live webinar on Trading the News with our course instructors. In the webinar, {CLICK} instructors will relate what you have learned here to current market and trading conditions. {CLICK} Instructors will also field live Q&A on the topic of news trading. Thank you for watching and we ll see you in the live webinars.