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News Straddling Trading Strategy (Part III)

You should understand the discounting effect in the forex market. Often new traders get confused and ask why a particular currency has rallied despite the negative economic figures about that country. Sometimes, the currency can decline on the release of positive news.Learn swing trading.

Try Netpicks forex signals free. When there is good economic news about United States, commonsense says that US Dollar should appreciate. Similarly when there is bad economic news and there are signs of economic weakness, like unemployment and huge budget deficits, commonsense tell that US Dollar should depreciate. However, it can be the other way round. These types of effects confuse and bewilder new forex traders.You should develop a mechanical and rule based forex trading system.

What is the reason that a particular currency goes up despite bad economic performance of that country or the currency goes down despite good economic performance of that country? This can be attributed to the discounting mechanism of the forex market.

Traders try to take into consideration the future expectations about the currency in their present trading decisions. The market’s inbuilt discounting mechanism is formed by the anticipatory reaction of the traders.

Traders will be bearish on JPY and go short now, if they think that Japan will suffer from the rising oil prices in the near or medium term, thus pushing down the currency. But the traders will be bullish on JPY and go long now, if they have a positive view of the Japanese economy, thus pushing up the currency.

In this way, currency prices integrate the market’s expectations about the future. This is somewhat similar to the saying: “Buy on the rumor and sell on the news.” Even before the economic data is released for public consumption, market has already made up its estimates of those figures based on the work of analyst and economists in the major trading institutions like banks or funds.

Suppose, the market thinks that the US Consumer Confidence Index to show a worse figure than the previous month. Market has already compounded that information in the exchange rate of say EUR/USD way before the US Consumer Confidence Survey results are released to the public.

When the US Consumer Confidence Survey figures are released, what will move the market is the amount of deviation between the expectation and the actual figures. The currency pair EUR/USD was rallying due to poor market sentiment for USD.

This is old news for the market if the released figures are almost the same as expected. No surprise was caused in the market. This information has already been compounded into the currency prices.

The release of the anticipated news or data can often cause the currency price to move in the opposite direction initially to where the market had positioned itself before the release of the news. After sometime the market adjust itself and the status quo prevails.

Suppose the US Consumer Confidence Index figures turn out to be almost the same as expected. EUR/USD pair may even end up declining with the USD strengthening even in the face of a negative consumer confidence number.

This contrarian market reaction is the result of traders who had gone long on EUR/USD closing their positions and taking profit on the news release. Thus the lack of any deviation between the expected and the actual figures may cause the currency pair to move sideways or even move in the opposite direction as the status quo remains.

News Straddling (Part II)

Learn forex scalping.In the world of forex trading, there are no rules or restrictions against insider trading. Anyone who possesses information that is known only to a select few can and do trade that information in the forex market. First trade on your forex demo account.

News is information. Information is what drives the forex markets. Publicly released news is disseminated to the various newswires. Any trader who has access to these newswire services can tap into that information and react accordingly in the forex market. Timely reaction to new information can be very profitable.You should develop your own forex trading system.

However, you must know that the institutional players do get information that retail traders don’t have. Institutional players have access to the order book of their clients. They know the location of their market orders. They may also know something that others don’t through their contacts in the industry.

At times, this isolated news access may not translate into real market action if other players don’t have that information. However, sometimes the news may give an unfair advantage to the institutional players.

In other words, forex market is dependent on news. There will be negligible or little price movements in the market if there is no news. You can say the currencies move based on the technicals. Even then, these technicals have been established previously by news or expectation of future news.

Now the market reaction to the news is staggered. The market reaction to the news is specific as it depends on both the type of medium that the news is transmitted on and the type of news that is being released.

Most active traders, get their information from electronic market news services. All of these online news service relay the information to the computer monitors of the traders at almost the same time as the market event occurs with very slight delay.

However, there are many other less active traders who feel they don’t need real time news so they don’t subscribe to these online news services. They rely on market commentaries written by analysts and published on websites or in newspapers. The market reaction can thus be staggered.

Market reaction may be immediate within the first few second from those who receive real time news to a more delayed reaction from those who obtain the same news hours or even days later.

The market reacts differently to different news. Some news may produce little or no reaction at all. Forex economic calendar is usually packed with an average of twenty to thirty economic news releases per trading day.

You have to be selective to what news to focus on as the market reacts to a varying degree in relation to the type of news that is released. During times of scheduled news releases, currency prices adjust very rapidly to the released data.

Currency market reacts to what of the news rather than the why. For example, the currency prices will move as the market reacts to the better than expected unemployment figures. The market will not have time to consider why the unemployment figures are better this month as compared to the last month.

News Straddling Trading Strategy (Part IV)

Develop your own forex trading system. There are easily 15-20 daily economic data releases relating to the major currencies USD, JPY, CHF, CAD, EUR, GBP, AUD and NZD. Trading news can be a very profitable strategy if you know when and how to enter the market. Forex market react the most to the release of the US economic news. Know the forex market.

Know these forex training secrets. An initial part of the news straddling strategy is to pick out the various market moving announcements that can have a big impact on the forex market. The currency market mostly responds violently to the release of US economic data figures. This is not surprising given that US is the largest economy of the world. US is also the world’s major trading partner. This is the main reason why the US economic news announcements have the greatest potential to influence other countries economies and their respective currencies.

The release of unemployment figures, interest rate decisions, inflation, consumer confidence, trade balance, home sales, industrial production, retail sales, manufacturing and business sentiment figures is of significance to the market especially if it relates to US or Euro zone.

Many economic reports are released once a month. If you want to trade these news releases, you should note the dates on your trading calendar. Other than the dates, you should also note the time of that economic data release. These news releases are usually made around 12:00 GMT or 13:00 GMT. At this time, it is morning in US and the European markets are still open.

News straddling strategy is an intraday trading strategy. It maybe more advantageous to focus on the more volatile currency pairs! It tries to take advantage of the high amount of volatility that is usually generated with the news announcement.

The news straddling strategy should be applied on currency pairs that involve the USD. The most market moving news relates to US. Some good candidates for this strategy are USD/JPY, GBP/USD, EUR/USD and USD/CHF.

The four major pairs ERU/USD, USD/CHF and GBP/USD tend to be better candidates than USD/JPY. Certain currency pairs among the majors respond better than others when it comes to trading major economic news release. So try to focus on the pairs involving the Euro zone currencies as the European markets are usually open at the time of US news release. However, the Asian markets where the JPY is mostly traded are closed by that time.

Economic News Straddling strategy is only employed upon the release of significant scheduled news. Moderate to very high price volatility can be expected during the time of the news release. We can expect to profit from the resulting sharp market moves.

You should mostly concentrate on the EUR/USD pair based on its superior liquidity compared to the other major currency pairs for this strategy. This strategy requires fast entry and exit. Currency prices usually respond very quickly in a knee jerk reaction to a move in one direction and may correct themselves very quickly, so you must be very nimble.

News Straddling Trading Strategy (Part V)

Know these forex broker games. News straddling strategy depends on the use of a stop-limit order. A stop-limit order is basically an order that becomes a limit order once the currency reaches the designated stop price. At the specific price the stop-limit order becomes a limit order. The stop-limit order will instruct the broker to buy or sell at the specific price only when the specified stop price has been reached. Try Netpicks forex signals free.

Develop a rule based mechanical forex trading system.The main advantage of using the stop-limit order is that the trader can decide ahead of time the price at which the trade will get executed in the News Straddling strategy. However, the stop-limit order may not get filled at all. This is exactly what our strategy is. Either we get the price that we want or we don’t trade!

Due to the fast moving nature of the market, the currency price may not stay within the limit range for the order to get executed. Second reason could be there is not enough supply and demand at the price at which the order is to be filled.

We are instructing the forex broker that the entry price is either filled at the limit price or better by placing the stop limit order. Using stop-limit order helps us avoid risking slippage. . If the price that we want is not possible than the order is not executed at all! If we are not able to trade at the entry price that we want, it is better that the position is not filled at all.

However some brokers do not allow stop-limit orders on their platforms. If the broker does not allow the use of stop-limit order, simply look for another broker that does allow it. Simple as that!

The news straddling approach is conceptually similar to a channel breakout strategy. Most often, a horizontal channel is formed prior to the release of the news. This channel may be identified on the intraday 5 minute or 60 minutes chart.

First draw a lower line connecting the two lowest points, forming the support line. Then draw a second line connecting the two highest points to form the resistance line. The two line snow forma channel. The channel should be roughly like 40 pips wide.

Once you have identified and drawn the channel on the 5 minute chart, monitor it for 20 minutes prior to the news release. A channel basically tells that neither the bulls nor the bears are over enthusiastic about their bias before an important new release.

Place a stop limit long entry order a few pips above the resistance level and a stop limit short entry order a few pips below the support level of the channel. Name of the game is that we either enter at the price that we want or we completely stay out of the market. Place your entry order not more than a few minutes before the news release.

For a long entry, a stop sell order is placed at least 20 pips below the resistance level. For a short order, a stop sell order is placed at least 20 pips above the support level. Each stop-limit entry order must be accompanied with a specified stop loss order and profit-limit orders.

What should be your take profit target? The initial take profit target could be equal to the width of the channel. A staggered profit taking could also be considered. You can set your initial profit objective for half of your lot size and you could set profit target equal to the twice the width of the channel for the rest of the position.

News Straddling Trading Strategy (Part I)

The forex market is extremely sensitive to the flow of news related to it. Major short tern currency moves are almost always preceded by changes in fundamental views influenced by the news. Traders around the world make a living by processing and translating information into money.Get these forex training secrets.

We live in an era where information can be extremely powerful and strategic asset. Timely information is vital to an individual or a corporation and information equals money especially to a trader. Shutting yourself off to the news can be suicidal.Understand these forex broker games.

Traders especially the day traders require the latest up to the second news updates so as to facilitate their trading decisions which have to be made at the lightening speed. The speed of the news dissemination is very important to traders.

Online news services display the latest financial and economic news on their computer monitors. Many opt for instant online news services such as the Dow Jones Newswires, Bloomberg and Reuters.

News is important to forex trading because each new piece of information can potentially alter the trader’s perception of the current or future situation relating to the outlook of certain currency pairs.

News that is of great importance to forex traders is generally related to a country’s economic, monetary and political situations and socio-political events that are happening around the world like in Middle East and North Korea.

Based on this news, these traders will be preparing to cover their existing positions or initiate new positions. A trader’s action is based on the expectation that there will be follow through in prices when other traders see and interpret the same news in a similar fashion and adopt the same directional bias as the trader as a result.

This is in a way an anticipatory reaction on the part of the trader as he or she assumes that the other traders will be affected by the news as well. Because of the expected impact it has on other market players, news is a very important catalyst of short term price movements.

Suppose the news happens to be bullish for the USD. Traders who reacts the fastest will be the first to buy US Dollar. They will be followed soon by other traders. Other traders may be slower. They maybe were waiting for some technical criteria to be met before they jump on the bandwagon.

There will be many who will join in the frenzy at a later stage when they get hold of the delayed news in the morning newspapers or from their brokers. This progressive entry of the USD bulls over time is what sustains the upward move of USD against another currency.

The reverse will happen on the surprise bearish USD news. Instantly traders will start selling USD on the assumption that when other traders will hear the news, they will also start selling.