How to Trade Forex on News and Events?
Very high price fluctuations
This may surprise you but as a price action trader I never trade the news. The biggest reason why I do not trade on news is because the value of an asset can fluctuate very strongly before and after a major event takes place. As traders, volatility is what makes us money. You can’t profit from a market that never moves. However, in these situations the movement of the asset is almost never predictable. Most often even experts are not sure in these cases what the right choice is.
We’ve all been in one of those positions that takes off almost immediately in our favor and doesn’t want to stop. And after two days of traveling 300 pips, we’re left with a boatload of cash. Those are good weeks. But they can also be incredibly dangerous, especially for the expert trader.
You witness how an increase in volatility can produce profits out of thin air. On the surface it all seems quite innocent. After all, what’s wrong with observing that higher volatility equals greater profits?
Ah, now you see where I’m going with this. You know that news, particularly high-impact events like rate decisions and non-farm payroll, trigger volatile conditions. If you have attempted trading events like these, you know how dangerous it can be. Yes, volatility can make us money, but attempting to trade an event that has a random outcome and market response isn’t the way to go about it.
It also goes against what we do as price action traders. Our trading edge comes from signals the market generates on the higher time frames, namely the daily charts.
There’s no edge in trading the news. That goes for entering a position immediately before or after an event.Even if the market behaves and moves in your favor, you’ll likely be stopped out before you can realize any profit.
So what’s the solution? Never trade the news.
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