During the beginning of my trading career it was difficult to decipher the numbers that were released with economic data.
One of the biggest challenges is to determine which category of information is more accurate and the market will react to.
For example, often times we will see economic data released that not only has the headline numbers for the report but also core numbers. It was said for some time that it was mostly the US that chose to focus on core numbers. While many disagree with this idea of looking at core numbers because it often skews the data, it does pose a problem because of all the confusion.
At the moment economic data is released most news traders will simply listen to the headline numbers and make a decision. However there are often times subcategories which the markets/traders will often want to focus on. If you are not aware of the specific report you are trying to trade and spend some time studying the details and reactions for some time, I would be very cautious trading real money on a gamble like this.
In the past news trading was an eccentric trading technique. Which of course did not last very long as brokers were able to determine how to prevent traders from scoring on easy money.
I will stress, trading is a serious business. If your goal is to make a living as a trader making a consistent income, then you will need to spend time understanding what moves the markets you are trading. You also must understand how other markets can affect the Forex markets.
When I began my trading career I realized from the start I would need to study slowly and consistently. I also realized I can only see the market’s reaction to a specific economic report once a month for the most part. So having a good understanding of how the market interprets the news will take more than two or three opportunities to witness the results of the report and the reactions.
Now the challenging part is… as markets change, so will the way traders react to a specific economic report. Markets move in cycles. For example there are times when markets are watching economic reports such as employment numbers or perhaps data that will affect the Feds decision to change interest rates. Other times it’s expected that interest rates will stay at current levels and markets will then be focusing on other issues and economic reports.
Of course all of this seems overwhelming especially in the beginning of your career. So what can you do for an opportunity to trade around the news?
The first thing to remember is trade slowly. If you do not trade during economic announcements, it’s okay.
No one should ever be in a hurry to lose money on something they do not understand.
Even to this day, the way I trade the news is to wait for the outcome or the reaction of traders to specific economic data reports. If it is uncertain at the time of the data release, I will either stay out of the trade or wait until I see a technical opportunity develop after the news is released. I prefer to see this technical trade develop and point in the same direction that I am able to determine (with a little more time), the direction of price and momentum.
Several things can happen and even situations I do not mention here but in general, price will remain inside of consolidation if the news is not significant enough or traders are looking beyond the data. It’s also possible the news was priced into the moves we see up to the release of the data.
So the first tip if you are new to trading is to learn how to identify consolidation.
If the news is sufficient to break price outside of consolidation, it is important to confirm that move outside of consolidation. You may choose to use indicators however it is important that you learn to gauge market sentiment and momentum. This is a much more reliable method than simply looking at an indicator at the bottom of your charts for confirmation. There are obviously several methods to gauge market sentiment and momentum and that is another important step you must take in order to be a consistent and profitable trader.
If the breakout of consolidation is confirmed and the news is the driver for the move, I will often wait for a pullback. This takes a great deal of patience. It is not easy to watch price move 30 or 50 pips without participating.
Waiting for a pullback after a significant move or break out of consolidation, allows for a much more affordable stop loss level. This is for several reasons.
The first is if you enter when price is breaking outside of consolidation, it is possible that the retracement could be anywhere from the middle of consolidation or back to the opposite side of the range it broke out from. This could be an enormous stop loss level.
If you are looking for a pullback, you are doing several things.
The first is watching how the markets and traders are reacting to the news and price moving outside of consolidation.
The next thing you are able to do by using this technique is to confirm the outcome of the economic data release. This will give you time to study the news and confirm the direction.
In most cases, but not every case, a pullback will stop around a support or resistance level. Often times you can use your Fibonacci tool and it will line up at a 382, 50, or 618 retracement level. Often times the pullback will also stop around psychological levels or old highs and lows, specifically the high or the low of consolidation from where price has broken out.
It is important that you understand both fundamental and technical analysis. It is one of the safest ways to trade and in most cases the most reliable. Often times the release of economic data simply has no effect and you can often times it see that in the charts. There isn’t always a trade available everyday or at all times. and this is another great asset every successful consistent trader must possess, patients.
If you do not understand what you see happening in price or in the markets or if you do not see your specific trade set up, stay out of the markets and just watch. There is a lot to learn from watching price and how traders react.