Pre-Trading Forex News Releases

By: Terry Allen

You can also improve your chances of success if you learn how to detect the consolidation phase of your currency pair of interest just before the news release. Price action tends to become more stable at these times because the market is anticipating the event. Prior to the release, traders are hoping that the news will create a breakout with sufficient momentum that it will cause a price surge.

This activity can be quite dangerous though as fundamental news events are notorious for producing whipsaw reactions. This is because, in many cases, the market takes an instant view of the headline figures but reverses its decision soon after it has analyzed the details in full. To combat such effects, you must have a well-planned stop strategy in place.

Despite all the complications, trading news releases can be a very lucrative activity if performed correctly. Basically, there are three main ways of performing this task which are: pre, post and spike trading. As the last one is considered to be quite difficult and best left to experts, let us just concentrate on the first one in this article.

In addition, we need to focus on the major news releases which are capable of generating large increases in volatility and as such provide the best opportunities of realising good profits.

To undertake pre-trading of Forex news events will require you to establish your intended trade conditions before the news is released. As previously mentioned, price action normally tends to stabilize into a consolation pattern just before the release under scrutiny. As such, the range is capped between a ceiling or upper resistance and a floor or support.

You will then have to set two pending entry orders with the buy about 10 pips above the ceiling and the sell 10 pips below the floor. These orders need to be self-cancelling so that the activation of one cancels out the other. Your bull stop should be 5 pips below your sell entry value whilst your bear stop should be 5 pips above your buy entry order.

Many experts prefer to use an open target level because major news releases can generate significant pip movements and this strategy will provide you with the best opportunities of capturing the largest profits possible. However, as these events are notorious for whipsaw actions, be prepared to move the stop of your activated trade to breakeven as quickly as possible, even if you have to do this manually.