News Trading: How To Do It And What To Expect From It

In This Video:
2:22 The Challenges With News Trading
3:05 Trade With Charts For Big Impact
6:05 Base Trades on Technical Analysis

Let’s talk about news trading; how to do it and what to expect from it. So let’s talk about that more, right now.

Hi Forex Traders, it’s Andrew Mitchem here, the Forex Trading Coach, and today is Friday, the 19th of June and in this video and podcast I want to talk about trading the news as a Forex trader.

I get asked questions quite often about news trading, and although I am now a technical trader, I have traded the news in the past. I had another email came through here just this week from Seya, and Seya says, “Hi Andrew I am a big fan of yours and without fail I always listen to your weekly podcast and I read your daily news updates on your website. Can you talk about news trading i.e. the higher impact data events like the Fed rate decisions etc?

So, the way I look at trading is this: as a technical trader I look at the charts. Yes, news affects how the charts develop and without a doubt we have to be aware of the higher impact news announcements, because that’s how the market moves. Sentiment changes on news announcements.

Now, about eleven or twelve years ago when I started trading Forex, I used to trade the news quite often because back then, things were different and, like most things in life, times change. And back then I used to make a lot of money out of straddling things like the non-farm payrolls or non-farm employment change that it’s called today. And back then you could do that. You could put a buy stop on above the current price and a sell stop below the current price. And, as I’ve mentioned many times, and it is also in my book, I make around 12% on my first non-farm payroll news announcement by having a straddle. I had a ten grand account back then and I made about twelve hundred dollars in less than thirty seconds! Let’s say a buy stop got filled, as soon as I could delete the sell stop. I was in a big, frantic panic. I closed the buy stop out. I made 12 % on live account on my very first non-farm payroll. And I thought, wow this is so amazing, this is so easy! But back then you could do those type of things.

The Challenges With News Trading

But today, things have moved on. Brokers have made that a lot harder to do. You get price freezes during news announcements, you get big gaps, you get wide spreads before the announcement, you get spikes up and down. You just can’t straddle the news like you used to be able to do. You get other things. If you place an order in there you suddenly find there’s a big spike up, let’s say, and you get filled way up here whereas you asked to be filled down here, so you get those types of things happen. And really it makes it very hard to trade news as like a straddle trade.

People do have things like they will wait for a news announcement and they’ll place a trade after that news, and that’s fine if you have a method that works. And of course there are news traders out there that make a lot of money out of trading.

Trade With Charts For Big Impact

But me as a technical trader, I much prefer to look at the charts because the charts, especially the longer timeframe charts, tell me where the news is likely to move the market. So I have a fairly good understanding of whether the news is likely to be better or worse than anticipated by what’s already been shown, several hours sometimes, several days sometimes, in advance of that news announcement actually happening.

So this is how I look at news trading. Now, as a technical trader (not a fundamental trader), if I am trading 4-hour charts and higher than that, so 6-hour charts or daily charts, whatever it might be, the news doesn’t really affect those trades as in getting a stop out because those longer timeframe chart trades, any whip soaring in the price action over news announcement doesn’t really affect them. However, if I am trading anything lower than a 4-hour chart, so let’s say a 1-hour chart or 15-minute chart, I’m really aware of those high impact news announcements that affect the currency that I am actually trading.

So, as an example, if I was trading the Australian Dollar/US Dollar (AUD/USD), and there was a high impact news announcement coming out of Australia, quite soon and I am already in the trade, then I’d likely close that trade or at least close part of that trade before that high impact news announcement. If I was trading a 15-minute chart on the Aussie/US Dollar and the news announcement was coming out, let’s say, within the next hour, I probably wouldn’t even take the trade. Because I am getting a high impact news announcement that is likely to affect the pair that I am trading.

However, at the same time, let’s say I was trading the British Pound/Japanese Yen (GBP/JPY), for example. That currency pair is so unlikely to be affected by that Australian dollar news announcement that it doesn’t really matter what timeframe trade I am trading if I am trading the pound-yen because the pound-yen is highly unlikely to be affected by any Australian dollar news.

It all depends on which pair you are trading, what timeframe you’re trading, what the news announcement is, what type it is and what currency pair it is likely to affect. So that’s the way I like to trade today.

To be honest, as a technical trader the vast majority of my trades are not affected by news announcements at all. I don’t sit up all day and not watching news announcements because back then, twelve years ago, when I took that first non-farm payroll trade, that happened at 2:30 in the morning for the local time here, which was 8:30, in New York at the time. And I just couldn’t sleep. It was such a thrill. I made 12% on my live account in like 30 seconds. It was just incredible. I could not get to sleep that night. But, like I said, things change.

Base Trades on Technical Analysis

You have to develop and evolve as the market changes and as brokers change, and so as a technical trader today, I much prefer to look at the charts like I see behind me here and look at what the charts are telling me is likely to happen and take a trade based on technical analysis.

So, that’s my view on how to trade the news. In short, I don’t specifically trade the news as such. But everybody is different, and like I said, there are people who make money out of technical trading and fundamental trading and a combination of both.

I hope that helps. Any questions that you have, just email me [email protected] and I’ll make sure that I answer your questions on future videos and podcasts.

So, that’s it for now. Have a great weekend and I look forward to talking to you this time next week.

Bye for now.