Appearance of important macroeconomic indicators, as a rule, causes high volatility in the currency market; in turn, there is a temptation to trade in a period of appearance of news. Classical literature on the fundamental analysis recommends to avoid trading in the period of publication of significant data, as it is a high risk-bearing trade. In our opinion, a well thought-out approach to trade on news can provide you with a number of good transactions in a month.
    In this article we will consider technical aspects of trade on fundamental news. It is necessary to make a reservation that you should learn theoretical foundations of fundamental data analysis before applying technical tactics of trade on news.
    Before starting consideration of separate strategies, we will allocate a number of general principles which we should follow at opening of positions on news:
- opening of position should not be done manually straight after appearance of news, but by means of pending orders set up in advance;
- it is obligatory to set up “small” stop loss at 10-20 pips;
- the profit is also should not be fixed manually, but by means of pending order – take profit, or by means of trailing stop;
- it is better to be at the terminal and to watch further developments of events at the moment of appearance of news;
- When choosing data for trading, you should give preference to news, which will lead to strong movement in the market with high probability.

Let's explain, why we recommend to work exclusively on pending orders in the period of appearance of news.
The first reason. As we mentioned before, the appearance of news causes splash of volatility in the currency market. In this case, you simply will not have time to join the movement in time. No trader has reaction as quick as lightning. The market will be faster in any case.
    The second reason is actually the other interpretation of the first one. A broker receives different prices from several largest banks, and then selects the closest variant to the price requested by the client. And the broker executes requests in the following sequence: 1) stop loss; 2) take profit; 3) other pending orders; 4) transactions "on demand", i.e. entry into the market "manually". Thereby, after the broker executes all pending orders, the price of entry into the market, offered to you, can be much worse than the quotation, requested by you. Pending order guarantees that the transaction will be opened exactly at that price, which you used to set up the order.
    We’ve also emphasized above that at transactions on news the size of stop loss should be minimal. This results from the fact that after appearance of news the price moves quickly and in one direction. Moreover, 10-15 pips stop loss will provide quite favorable risk/profitableness ratio for the transaction.
    Now let’s examine the principle of setting up take profit. Here we should take into account the average swing of price movement on one or another news. Trace on history the average number of pips that the currency pair, chosen by you, passes on economic indicator data. When take profit is set up, you should also take into account significant support/resistance levels.

News Trading Strategy 1

 

This strategy includes setting up two pending orders in opposite directions – buy stop and sell stop. It would be better to plan the transaction on trade on news in advance; however we recommend to set up pending orders several minutes (!) before appearance of news. All pending orders, which were set up earlier and are not the part of strategy of trade on news, should be removed on the threshold of publication of significant data.

    Then a question arises: on what distance from active market price should we set up pending orders? We will consider possible variants:

 

1) The simplest way – on equidistant distance of 10-20 pips.

 

2) Taking into account the nearest support and resistance levels. We recommend to use this variant, if the current price has come nearer to strong support/resistance levels.

 

3) The third variant seems to be the most reliable. Often enough the price is traded in a narrow range in day of appearance of significant news, before publication of value of indicator.

If it is really so, i.e. you see clearly formed corridor (volatility is very low in the market before appearance of news), then it really makes sense to open a position on news. In this case pending stop orders should be set up outside the bottom and top borders of the range, formed within day.

    You must set up minimal stop loss and take profit, taking into account volatility, when you use any of these three variants.

Using the strategy 1, it is important to close position in time. If you see, that movement of the price of has exhausted itself, it would be better to close position manually. In any case, trade on news assumes holding of position in the market from 30 minutes up to one hour.

 

Example: “Tragic reverse” on Nonfarm (pic. 1).

 

The data on the employment market in the USA for November, 2006, were published on Friday, December, 12th, 2006. Level of unemployment unexpectedly rose from 4.4 % to 4.5%. Such data had to bring pressure to bear upon dollar, and that happened. EUR/USD exchange rate rose approximately on 80 points within an hour after publication of data. According to the principles of trade on news, which we considered above, the transaction on news should have been closed after an hour from the moment of publication of news. If you didn’t do it, you would be overtaken by the strongest reverse: almost one and a half pattern. Certainly, such reverses are quite rare phenomenon, which is almost impossible to predict. However accurate following the rules of trade on news would help you to keep profit and to avoid loss.

 

Friday 08.12.2006

 

 

Picture 1. EUR/USD, М30 (each candle каждая was formed for 30 minutes)

 

 

News Trading Strategy 2

 

    This strategy includes opening of position in one way – in the most probable direction of price movement from the point of view of tools of technical analysis. Here trends are used quite actively. So, for example, opening of position in the direction of day charts movement is possible.

    The position can be opened several minutes before publication of news, having set up minimal stop loss and take profit, taking into account volatility.

    You can set up pending order as an alternative variant, but only in one direction. Requirements on setting up stop loss and take profit remain invariable.

 

Retracement

 

We recommend the following: avoid trade on retracements. If you missed the main movement at publication of data, it would be better to refrain from trade on news at all.

Conclusion

 

Trading on news can give you some good transactions every month and, thereby, to increase the set of tools in your trading strategy. Transactions on news are attractive because of quite high potential of profit and minimal risk.

Metatrader Expert Advisor "News Trader"

This adviser trading principal is based on economic news and is a very useful tool in the portfolio of every trader.  In a given time, several minutes in advance of the news issue NEWSTrader places two different orders. There is a special mode within the adviser which allows to delete one pending order in case if another pending order was made. Several intervals are possible.

The following type of orders can be used:

MarketOrders = false; //open buy and sell market ordrers true/false
StopOrders = true; //open buystop and sellstop pending ordrers true/false
LimitOrders = false; //open buylimit and selllimit pending ordrers true/false

OCO = true; //One-Cancel-Other mode for pending orders

extern int Dist = 50; //distance from the market price to set pending orders  

There is also trailing stop added.

The advise can work both on five-digits and four-digits quotations.

extern bool Acc5Digits = false; //set true if your broker provides 5 digits for EURUSD

Read more about MT4 expert advisor NewsTrader

Post your questions about about Fundamental News Trading and MT4 Expert Advisor "NewsTrading" on our   MT4 Forum

Regards,

BJF Trading Group