Trading the News event: The Best Trade and critical mistakes

Trading the News event: The Best Trade and critical mistakes

One of the toughest aspects of trading FX is that we are faced with many choices when looking to place a trade.  How we choose can often mean the difference between success and failure.  Furthermore we must be flexible enough to admit and change course quickly when our choice is wrong.

In the mayhem of post news trading this can literally mean turning on a dime when the analysis is incorrect. Thus the key to success of reactive trading is not just to execute the obvious idea, but choose the best idea under the circumstances. Like a pilot making split second decisions to guide the craft to safety we must do the same with our speculative capital.

Traders often make a critical mistake when trading a post-news announcement: take the GBPUSD as an example. I remember a situation whereby retail sales would come out and you expect them to be better than expected and although we don’t anticipate trades we do reactive trades. If that bias is confirmed when the data are announced then we have a really good opportunity for a trade in that currency pair.

The critical mistake that people always make is that if news is good for the UK than we seem to think, wrongly, that this is always a good idea to buy the GBPUSD. However what does one often see: the pair spikes up and then retraces and many traders get stuck in this retrace as they hastily want to buy the pair and usually end up buying at the top and as they put a stop down there they get easily stopped out as the retrace may happen very quickly as well.

A much better and intelligent way to look at it is to consider GBP strength ‘coz what you are really going to be trading is GBP strength. Try to see if there’s any opportunity in the crosses and this is where the best possible trade really comes into play because my first initial impulse was to buy the GBPUSD but in retrospect that would have been a bad decision. The USD was at that moment not necessarily a weak currency. Instead we bought the GBPJPY and this due to certain factors: the GBP was the strong currency and due to rising stock markets and the risk-on environment the JPY was the weakest currency at that moment. That was the logical and best decision.

Therefore don’t just look for the good or the most obvious trade but look at the best possible trade at that given time. Add to this story the understanding of how money market makers manipulate the FX markets at those events and you will be on the right path how one should look at trading and profitability during post-news events.

Rudy – Professional Forex Trading Mentor

+27 82 926 6855

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