The impact or outcome of an economic news event can cause great anxiety, nervousness, panic & excitement. The result of this is the sharp spike, and whipsaws that either adds to the profit or drains the account in few seconds. This article reveals a solution on how to guard yourself from such occurrence, and profit from it.
FACT: A news outcome can cause a spike in a currency to move sharply from 60 to 100 pips in seconds. That is what some traders struggle to get in days and weeks. This makes news trading extremely beneficial, and at the same time very riskyThe question is why does this happens? Simple - the global market always reacts instantly to heart breaking or happy cheering news about the status of a country's core economic indicator, which is used for investment decisions. The two (2) major decisions are to invest or to pull out. For example, during the Swiss Franc Euro Capping episode in January 2015, the reaction world wide was extremely drastic up to the extent that major brokers, and banks were seriously hit.
FACT: A HotForex trader (Ayodele Odingboro) made a gain of 1,355pips while trading the CHF pair during the Swiss Franc Capping Episode despite the extreme spike.The following are certain to happen after figures or decisions are released from an economic news event:
- Market moves to the direction of the outcome of the news release (one way instant direction).
- An indecision may occur leading to whipsaws (sharp up and down movement) hitting both SL instantly.
- Nothing happens, and price continues on its natural path.
HOW TO GUARD YOUR TRADES FROM NEWS SPIKES
One of the best tools that can protect your account from news spikes, and at the same time profit from it whether the trade is going against you is Trailing Stop. I want to state this clearly - there is no other tool that can do a perfect work than the Trailing Stop Tool. Any news trading EA or system that does not integrate trailing stops is highly deficient.
What Is The Best Amount Of Trailing Stop To Use?
All news event comes with different impact. Some have a usual pattern like the UK MPC Rate Decision, GDP Reports, Unemployment Data, CPI's, & some speeches. They often manifest with sharp or steady spike. Therefore their trade settings differs.
- For high impact news trading or events that causes lots of volatility in the market, use high or medium trailing stops. The idea is to capture the fast movement of the market while giving it some fair distance, and then later adjust it upwards until your TS is much closer until it either reaches your TP or price returns back hitting the TS.
- For events that comes with slow paced movement at the beginning like speeches, wait for price to advance gently until you are sure of its direction. Then use a medium size TS until the event is over.
- All other events use medium TS. Do not use very tight trailing stops because immediately your order is hit, the TS quickly activates, and the tendency for price to retrace, and hit the TS and then reverse back is very high. So capture a bit of it; leaving a safe distance as it advances, and then as soon as it picks up momentum you can adjust it to get closer.
- For events that has a reputation of creating whipsaws (fast up and down movement), which is capable of hitting both orders (BUY/SELL), then you can use tight trailing stops. The essence of this is to grab the best possible pips from both sides. There are cases where this happens in the speed of light. You only see the effect in your account journal. It is most times beyond our control.
Additional Tips
High Trailing Stops - 75 to 100 pips
Medium Trailing Stops - 50 to 65 pips
Tight Trailing Stops - 30 to 45 pips
The above pip value is for Five (5) digit pricing brokers. It is also applicable to Four (4) digit pricing brokers.
Furthermore there are no fixed value for Trailing Stops. You need to closely monitor and understand how a currency reacts and come up with the right Trailing Stop that can manage the trade during the impact.
Quantina News Trader EA Ultimate 2015 (Auto & Manual) trades the news with a customized trailing stop feature which can be modified to users taste.
Image "Traveling at Speed of Light courtesy of digidreamgrafix" / FreeDigitalPhotos.net