More Techniques for Trading Forex Breaking News

By: Terry Allen

The technique of post-trading Forex news is based on the fact that once the market has made up its mind about the impact of a major news item, it eventually hones in on its preferred direction. This method has the advantage that you do not subject yourself to the emotional drain that can result from pre-trading news.

The recommended strategy is to simply wait until about 20 minutes after the release and then enter a trade in the direction of the market. When using this trading method, you must be particularly careful when dealing with news releases that are extremely volatile in nature such as the US non-farm payroll.

Another method of trading news releases is to take advantage of trading the direction of the market on a retracement. Basically, if the actual released number significantly deviates from its expected value, then this normally produces a price surge in one direction. In these cases, the initial spike is often followed by a retracement which is normally caused as a result of profit taking.

A good strategy is to wait until this retracement has completed and then enter your trade which will consequently have a better risk to reward ratio as a result. As there is no fixed method of detecting the end of the retracement precisely, many experts use the following two techniques in an attempt to do this.

The first method is to look for signs that the retracement pattern is consolidating whilst the second involves waiting for the price to resume its original direction e.g. after it has advanced about half of the size of the full retracement.

You should place your stop at least below the bottom point of the retracement or below the price value at the time of the news release. You can also take advantage of the fact that often before the news release, price action moves into a more restricted range or consolidation pattern. This is because traders are waiting for the release before determining their next moves. If you can detect such a channel by identifying a price ceiling (resistance) and floor (support), then you can range-trade before the news event occurs. However, there is a tendency for the price to drift in the direction of the expected news result. For instance, if a US news release is expected to be good, then the EURUSD may start to exhibit a picture of lower lows and lower highs. Fakeouts frequently occur during these time but they rarely form into full blown breakouts before the breaking news happens.