How often did it happen that the price chart began to soar or plummet by 50 pips in a matter of seconds? How many inconsiderate traders lost hundreds pips because of ignorance of imminent release of important economic news? Probably, everyone. In this article we will review how to trade on news and the news indicator, which will help you know the past or future major events.
The strategy of trading on news has gained popularity both among experienced traders and the beginners. This is nothing strange – just look at the movement of currency pairs after the publication of the FRS report or the unemployment data. Currencies react strongly to the important news and allow traders to earn a lot of money in just a few minutes. Compared with the daytime sitting in front of the screen and searching for the entry point, followed by more agonizing hours of waiting for the outcome of the deal, trading on news looks very attractive. But we won’t miss the fact that the risk associated with trading on news is great. The market doesn’t always adequately react to economic data, and trading on news is largely connected with human emotions, so strong movement in one direction and the following greater movement in the opposite direction are not rare. Therefore, the trader hunting for news should have a clear sequence of actions.
The most common way to trade on news is placement of limit orders to buy and sell in advance. It is best to use 5 or 15-minute timeframes, as they allow to see more accurate price fluctuations and its dynamics as a whole before the publication of news. Usually five minutes before the economic data release the price movement slows down, which allows to set pending orders to buy and sell. A compromise solution is to set the orders at a distance of 15-20 pips from the current price. After the index value becomes known, the price either soars or plummets. It is therefore necessary to set limits, because you won’t catch the price manually – due to rapid fluctuations, your broker will be constantly negotiating a new price with you.
Once one of the pending orders works out, you should set a stop order at the place where the second pending order was set. It is better to close the position upon reaching a certain level of profit, such as 50 pips. This is necessary in order not to lose the profit on the reversal movement, because after the hype around the news ends, the currency pair may reverse or resume the previous movement. You can also close the deals on news after the hour bar closing. The main thing for a trader is to have some rule to close the deal, because the continuation of trading after the news release carries high risks. Trading on news is a deal of a maximum one hour length, usually 5-10 minutes. Follow the rules of trading.
Traders practicing this trading method definitely must set the news indicator. The indicator informs about the past and future news. In the meantime, the news indicator shows the results of economic data publication. News indicator is very easy to find online. It is worth paying attention to the news source when choosing the indicator – let it be a popular and authoritative portal (website). It is also necessary to choose an indicator which updates news as often as possible – usually news indicators draw the news results on the price chart 30-60 seconds after publication.
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Those who don’t trade on news are also recommended to install the news indicator. You don’t have to be always aware of the latest news to trade successfully. Using this indicator, traders will know that it is not the best time to open a deal, because the important news will soon be released, or, vice versa, will close the deal prior to release of economic data in order to avoid losing the profit gained.