Responding to Trading News

Responding to Trading News

Submitted by adil on Mon, 04/29/2013 - 07:04

A seasoned trader knows exactly which elements add volatility to the market. Trading news is one such element and it adds a lot of volatility to the market. The more significant a news is, the more impact it has. For example, the USA’s employment data released by US Department of Labor every month, known as Non-Farm Payroll. The NFP acts as a fundamental indicator of US economy’s status and the market responds to this status.

For an unprepared trader, such volatility can be dangerous and fearsome, and probably he would have to wait until tides are quieter. But for the seasoned trader, volatility translates as an opportunity. This is because such trader always protects his downside, follows strong money management regimes and does not fall prey to emotional ambiguities. It is known that most traders succumb to human nature whereby they take immediately whatever minimum gains they get, and extend losses when they occur anticipating the market to move in intended direction.

News announcements bring with them compelling trading opportunities, with a lot of activity in short period of time. If you know how to render price information to your own use, you can analyze markets quickly and enter successful trades.

Trading in response to news announcements is like trading in ‘panic’ situations. You should first analyze the price leading up to the announcement. It is recommended that trader does this 30 minutes before the announcement. Observe past few hours on 5, 15 or 1-minute time charts by drawing a rectangle around high and low of the said period, say 14 hours before the announcement. Secondly, you should identify the support and resistance levels. For example in your price analysis that you conducted before, you would note the number of pips between the high and low of the period. These pips tell you the resistance and support before the announcement.

After identifying the resistance and support levels, you should set on about setting up entry orders and managing them. It will be very hard to predict which direction the market moves, therefore you can set an entry order to long above resistance and an entry order to go short for below support. You have to prepare for unexpected market movements and for such movements you should set an OCO (one-cancels-other) order. Finally, you should also place stop losses and limits and manage your risk in such fast moving conditions.

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