Trading the news in just four steps
By Tom Hougaard.
Formal education doesn’t help you become a good trader. My own mentor told me that ‘you only see what you have trained your eyes to see.’ This short run-through is an insight into how I have trained my eyes to trade news-driven markets.
Your first duty every morning is to check the calendar for economic news. Stick it
on your screen so you don’t forget.
I don’t anticipate what the news will be. I am too stupid. Instead I put my chart on ‘one-minute mode’. Whichever way the market breaks after the news is released is the direction I want to trade.
Once news is out and the direction has been set, I do my very best to get into the market on any kind of retracement against the news spike. It helps to have watched the market 10 hours a day for a few years. You get to understand price action.
I don’t look for a big move. If I can pick up 10-15 pips I will take it. My studies have shown conclusively that although there is no guarantee that the direction of the news spike will last for long, the market in question will almost 80 per cent of the time do a retest of the low it made on the news spike.
23 February: The MPC minutes are released. Cable spikes violently higher. After one minute I see a 20 point retracement. I buy it. I wait almost 10 minutes. Nothing happens. I get out for a small (but annoying) 10 pip loss. The market continues lower for the next hour.
25 February: The GDP numbers are released. I don’t even register the number. Price is my God. Sterling-dollar spikes lower. I wait for a 20 pip retracement against the spike. I enter, with a 20 point stop. I take a handful of deep breaths. I am out, 30 pips richer. The principle is always the same: wait for direction, enter on a retracement, and don’t be (too) greedy.
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