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Friday, April 26, 2013

More on how to trade fundamentals



I promised to write on the topic how to select the best candidates for your trades in my last post. However, I see that I have a shortage of time and will not be able to finish it this week. Besides, I have written a few posts about it and do not want to repeat myself too often. So, this theme will be dealt with in my future post. Maybe I will collect my thoughts and post an article on that next Tuesday. Today I want to add a few thoughts on how you can trade Forex news releases. I wrote a lot on the topic too, so this will simply be an addition to what has been written. Be sure to read my post on the topic with specific rules for trading these macroeconomic events.

With time this strategy of mine has evolved and I use more freedom in trading the news. I often skip even those events that are of high importance if I do not like the technical structure of the currency that should be affected most by the upcoming release. I do it, because I see that not all events (even of high importance create volatility and move prices sharply). 

So, with time I tried to incorporate more of technicals to this fundamental way of trading. I got better with this specific strategy and want to share just a few thoughts about it now.

When you are through reading this article read my other articles on the same subject:



Watch also a few videos of mine on how to trade fundamentals:



My technical preferences

I like trading news when currency pairs are stuck in ranges or are consolidating. This creates a much bigger chance for a breakout. If you see a consolidation pattern or a narrow range of a week or more you can be sure that the market has lost momentum and direction and is waiting to be pushed by some fundamental factors. It often happens when news comes out. 

I monitor around 27 pairs every day and know what state they are in at any given time. I wait for the prices to stall, lose direction and start ranging. I also like when those ranges are very small 150-250 pips in size. After staying in this pressed state currency pairs then explode one direction or another. 

Some pairs are known for their natural tendency to stay for longer periods in ranges than others. Canadian dollar is one of them. If you look at the chart of cad/chf pair from the 1st of March till 25th of April (2013) you can clearly see how it loves these small ranges and you can also see how it leaves them with explosive moves. The areas that are marked by ellipses indicate moves that were pushed by some kind of news. That’s how Forex pairs leave their ranges or move sharply within them. You want to take advantage of that. Wait for important news from Canada and see what happens when it is released.


Another thing that I have noticed is that when pairs are in larger ranges they tend to move from the very top to the very bottom and then back. They might stop somewhere in between, but tendency is always to seek top or bottom. So, when prices reverse at the bottom they often move up even if the news that comes out is negative. It means market has caught tendency and is shaking off the news. That is a feature of a trending market. 

Knowing this I often place my order only in one direction now. If you have already read my other article on forex news trading you know that I often place buy and sell stops on both ends of four hour chart or use other time frames to position myself for whatever direction market will take after news is released. I tend now to place order only in one direction: in the direction of a tendency that market is going on at the moment. I also place only buy stops when market is at the bottom of the range and sell stops when market is at the top of it. 

One more thing that I want to see in the price action before the news is released is some bias: bearish or bullish. I am sure that the ‘smart money’ is aware of the upcoming direction of a given security (or may even know what news will come) and it is taking position in advance by either accumulating or distributing. When I see that I know that market is positioned for the news in a specific way. Most often than not it does take that direction when news is released! This is another reason why I often (now) put only one order (in one direction) before the release comes. What happens if the market goes an opposite direction? I just skip the move and wait for another one. If you do serious analysis you will see that there usually is at least one big move (often more) during the week where you can make nice money. So, if I missed one move another move is around the corner. Do not worry about the past, think how you are going to use upcoming opportunities

A good example illustrating my point would be GDP data from Great Britain today (25th of April, 2013). If you look at eur/gbp pair price action starting from the 17th of April when a high in an up swing was made. Right after that the pair started making lower highs and sort of descending triangle was formed. A few attempts of bulls to go up were met by strong bearish pressure and price went down till finally news came out and eur/gbp collapsed. Therefore, I positioned myself only for bearish eur/gbp price action and placed only one order which was a sell stop. And down the Euro went!


Ok, I want to stop there and leave other insights regarding news trading for the future. This topic is definitely not finished. Get ready for more. Have a nice weekend and see you soon.

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!



Disclaimer
Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.