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How do you trade news?

Quoting dof
I'm thinking of appling the same thing. Trading only on USD / JPY. Do you have some material that you can share with me?
Thank you
http://www.chinarevaluation.com/latest_headlines.shtml
I have received several Pm’s asking about how I trade the news, so I’ll take a stab at trying to explain it.

First off I want to say that while this works for me, it may not work for you for reasons that will be self evident.

To understand how I trade requires a bit of background…

For about 15 years now I have been fascinated with macroeconomics and as a result my TV was always tuned to CNBC, Bloomberg, or the new defunct CNNfn. I have also read countless books on economics, so there is a tremendous amount of subconscious information rattling around in my brain.

When I was looking to buy my first house I started getting really involved in interest rates for obvious reasons. Day in and day out I would watch the news and how they affected 10 yr treasury interest rates (which for those that don’t know directly influence mortgage rates). After awhile I could predict with some accuracy what would happen to interest rates on treasuries after a news number came out. It was like a game, and I was surprised how often I was right. So on a whim, I decided to open a futures account and try my hand at trading them.

As you can imagine this was a disaster. I tried trading an FOMC statement and lost $1600 in 8 seconds. I only had a $5k account, so you can imagine I was devastated. I closed my account and thought I would never trade again. That lasted about 6 months and I discovered currencies. I don’t even remember how I came across them, but I would up sucked back in. I was terrified of the news and swore that I wouldn’t trade it so I embarked on the same path as everyone else.

I can’t tell you how many books and articles I have read on trading, and for the most part I found them all useless. As Merlin has pointed out, my chosen pair (USD/JPY) is about the hardest pair to trade, so the things that work elsewhere aren’t really relevant. But all the crap is still rattling around in my head, along with the economics and the interest rate stuff.

Fortunately I decided in the beginning to focus on one pair, so for months I eat slept and breathed the movement in the USD/JPY trying to find the solution. Finally I thought that it was impossible to predict anything beyond the next few seconds so I started scalping it. I didn’t make any money doing this either (the spread cost kills you even when your right), but I began to develop a deeper intuition about when a good opportunity to trade existed and when it didn’t. It should also be mentioned that I learned a lot about the psychology of trading real money and managing risk. Most important of all I learned how to cut a loss quickly.

From this I started expanding my timeframe to mitigate the spread cost. I started using the same principles I learned scalping on progressively longer time frames and things were improving dramatically. But as anyone who has been around for while will tell you, you need volatility to make money. My intuitive sense of the market kept leading me closer and closer to the news releases to take advantage of the price action. Finally one day (I forget what the release was) a news number came out worse then expected, price dropped about 10 pips and started moving north. I took the trade without even thinking about it and clipped about 35 pips in as many minutes. That was it; I was sucked into the news.

Now to address the question that everyone really wants answered, I don’t really have a system. I have no rules for entry and exist, I do it all intuitively. My charts are very simple. I have the guppyMMA’s to give me reference points (they don’t tell me to do anything) and a basic OHLC bar chart.

To give you my routine, on Sundays I look at the 3 hour charts and put some horizontal lines for support and resistance levels. I look at the forexfactory calendar to see what’s happening this week and note the times on my visaboard. I give some thought to what should happen if a number is better, worse, or as expected, and then I wait for the news. When it comes out I wait about 2 minutes and take a trade based on what I think I should do. The riskiest time is when I enter, so if it starts to move against me I cut it immediately (10 pips or so). Seven times in ten it will explode within seconds of the entry and I’m patiently waiting and watching for some reason to close. It should be noted that I don’t use stoplimits. This is what killed me in the treasury futures. And I also don’t set take profits. I rely on the market to tell me when it’s done. Sometimes this is a few minutes, sometimes several hours.

I know this probably isn’t what anyone hoped for. I realize everyone wants that “if X, do Y” type of information, but I don’t think trading is that simple. In the first market wizards book, the treasury scalping guy said that trading is like any job. When you start out in a new job, you really don’t know what you’re doing, but if you stick around long enough you don’t have any choice but to pick it up. I honestly believe every successful trader is successful because they have developed a subconscious understanding of the markets. So keep studying and learning. Pick a pair and trade it. At some point, you won’t have a choice other then becoming successful. The trick is surviving long enough to do it.

Good luck…
  • Post #63
  • Quote
  • Edited 7:42am Mar 28, 2006 7:34am | Edited 7:42am
Quoting Darkstar
I have received several Pm’s asking about how I trade the news, so I’ll take a stab at trying to explain it.

First off I want to say that while this works for me, it may not work for you for reasons that will be self evident.

To understand how I trade requires a bit of background…

For about 15 years now I have been fascinated with macroeconomics and as a result my TV was always tuned to CNBC, Bloomberg, or the new defunct CNNfn. I have also read countless books on economics, so there is a tremendous amount of subconscious information rattling around in my brain.

When I was looking to buy my first house I started getting really involved in interest rates for obvious reasons. Day in and day out I would watch the news and how they affected 10 yr treasury interest rates (which for those that don’t know directly influence mortgage rates). After awhile I could predict with some accuracy what would happen to interest rates on treasuries after a news number came out. It was like a game, and I was surprised how often I was right. So on a whim, I decided to open a futures account and try my hand at trading them.

As you can imagine this was a disaster. I tried trading an FOMC statement and lost $1600 in 8 seconds. I only had a $5k account, so you can imagine I was devastated. I closed my account and thought I would never trade again. That lasted about 6 months and I discovered currencies. I don’t even remember how I came across them, but I would up sucked back in. I was terrified of the news and swore that I wouldn’t trade it so I embarked on the same path as everyone else.

I can’t tell you how many books and articles I have read on trading, and for the most part I found them all useless. As Merlin has pointed out, my chosen pair (USD/JPY) is about the hardest pair to trade, so the things that work elsewhere aren’t really relevant. But all the crap is still rattling around in my head, along with the economics and the interest rate stuff.

Fortunately I decided in the beginning to focus on one pair, so for months I eat slept and breathed the movement in the USD/JPY trying to find the solution. Finally I thought that it was impossible to predict anything beyond the next few seconds so I started scalping it. I didn’t make any money doing this either (the spread cost kills you even when your right), but I began to develop a deeper intuition about when a good opportunity to trade existed and when it didn’t. It should also be mentioned that I learned a lot about the psychology of trading real money and managing risk. Most important of all I learned how to cut a loss quickly.

From this I started expanding my timeframe to mitigate the spread cost. I started using the same principles I learned scalping on progressively longer time frames and things were improving dramatically. But as anyone who has been around for while will tell you, you need volatility to make money. My intuitive sense of the market kept leading me closer and closer to the news releases to take advantage of the price action. Finally one day (I forget what the release was) a news number came out worse then expected, price dropped about 10 pips and started moving north. I took the trade without even thinking about it and clipped about 35 pips in as many minutes. That was it; I was sucked into the news.

Now to address the question that everyone really wants answered, I don’t really have a system. I have no rules for entry and exist, I do it all intuitively. My charts are very simple. I have the guppyMMA’s to give me reference points (they don’t tell me to do anything) and a basic OHLC bar chart.

To give you my routine, on Sundays I look at the 3 hour charts and put some horizontal lines for support and resistance levels. I look at the forexfactory calendar to see what’s happening this week and note the times on my visaboard. I give some thought to what should happen if a number is better, worse, or as expected, and then I wait for the news. When it comes out I wait about 2 minutes and take a trade based on what I think I should do. The riskiest time is when I enter, so if it starts to move against me I cut it immediately (10 pips or so). Seven times in ten it will explode within seconds of the entry and I’m patiently waiting and watching for some reason to close. It should be noted that I don’t use stoplimits. This is what killed me in the treasury futures. And I also don’t set take profits. I rely on the market to tell me when it’s done. Sometimes this is a few minutes, sometimes several hours.

I know this probably isn’t what anyone hoped for. I realize everyone wants that “if X, do Y” type of information, but I don’t think trading is that simple. In the first market wizards book, the treasury scalping guy said that trading is like any job. When you start out in a new job, you really don’t know what you’re doing, but if you stick around long enough you don’t have any choice but to pick it up. I honestly believe every successful trader is successful because they have developed a subconscious understanding of the markets. So keep studying and learning. Pick a pair and trade it. At some point, you won’t have a choice other then becoming successful. The trick is surviving long enough to do it.

Good luck…
Great post ,
I am fond of macroeconomics too, especially econometrics which implies mathematical methods, but I like it as science I think I cannot use it in forex trading as accurately as I use technical stuff. When I see how traders trade during releases I realize how many news traders lose. It is strange why market do not trade before NFP and after the release price goes to both directions like skyrocket. even bad datas are declined by the market. This means a lot of traders trade news, but I do not thinks thay are as profitable as technicians, furthermore I think 95% of losers consists of fundamentalists mainly.
I trade trade deficit numbers with TIC data together, but I dropped this method as I became wholly technician and tech. system follower
kiss the trend
In the interest of keeping this discussion alive, I would sure like to hear how some of you trade the Consumer Confidence report at 10 EST this morning, as well as the ominous FOMC interest rate statement. I'll post back later this afternoon with my activity, I hope some of you will share yours as well.

cheers
-g
Quoting Darkstar
When it comes out I wait about 2 minutes and take a trade based on what I think I should do. The riskiest time is when I enter, so if it starts to move against me I cut it immediately (10 pips or so).

Good luck…
Hi Darkstar,

I wonder if you have ever made any observations on "Pre Release Head Fakes"

By that I mean just a moment or so before the release is made "Public", the market speeds up thereby giving the imperssion to the unwary that "The News is out and it must be bad/good. I better be quick here." Only to find that the Market was merely backing up to take a strong run in the opposite direction.

I have no statistics to back this up and I am certainly not recommendig it as a strategy but I do wonder Who is causing it. Is it Major Banks who perhaps are privvy to the release slightly ahead of the Trading Public and driving the price to a better entry? Or is it skittish specs too nervous to wait for the release?

Any thoughts or observations?
It's definitly something I have noticed on occasion. My personal opinion is that it really is just the suckers getting their few seconds of fame. Leading up to all important news announcements volume and volatility drops considerably. You really have to have a gambling bent to take any trade right before a news event so the regular participants are just waiting. During those times it doesn't take much size to move prices dramatically and so the few trades that DO occur have a tendancy to look important.

I wouldn't try to do much with it. Wait for the real numbers and trade accordingly.
Quoting Darkstar
It's definitly something I have noticed on occasion. My personal opinion is that it really is just the suckers getting their few seconds of fame. Leading up to all important news announcements volume and volatility drops considerably. You really have to have a gambling bent to take any trade right before a news event so the regular participants are just waiting. During those times it doesn't take much size to move prices dramatically and so the few trades that DO occur have a tendancy to look important.

I wouldn't try to do much with it. Wait for the real numbers and trade accordingly.
Oh come on guys, that is tradable. just bracket that range with a 200 pip entry stop on the long and short. You bet ya!
Ha Ha
SMJ
I'll be the first to report in. All orders are in EUR/USD:

At 9:57 (EST) this morning I set a short limit order at 1.20769 and a long limit order at 1.2092 (just above and below the existing channel). My short order was filled at 10:00, just before the Consumer Confidence was released. Not expecting a huge movement from this news I closed the order at 10:12 at 1.2071, with an end result of about +5 pips.

This afternoon at 2:13 I set a short limit order at 1.20571 and a long limit order at 1.20861 (just above and below the existing channel). My short order was filled at 2:17, just after the FOMC interest rate statement. Because I was expecting a larger movement from this news release I let the order run a little, until it stalled at 1.2016 at 2:25, with an end result of about +39 pips.

I will now watch it move sideways, in anticipation of a channel breakout.

-g
After reading about Merlin being really excited, i decided to trade strictly a breakout system with 3 lots. Have done this with demo but rarely do i trade news.

SOOOOO i set stops on both sides of the Yen and Euro, took 20 pips profits on each of the first 2 lots with the idea of having a one lot free trade, to let it run. Was filled Long on the Yen @117.38. Remaining lot now 60 Pips to the good. I will now set the BE stop and let it go .

Euro was filled @1.2058 Short. Same deal. Last lot is up over 50 pips. Stop to BE, and let it sit.

This was kinda fun. I had all my triggers ready as often i have seen fakes to one side then the other. I kinda noticed a bias in this direction prior to the announcement. (kinda like a runner leaning toward second a bit more than normal) . In this case, my stops were hit, and never looked back.

Worked this time very nicely

my best,

Jim
Quoting james275
After reading about Merlin being really excited, i decided to trade strictly a breakout system with 3 lots. Have done this with demo but rarely do i trade news.

SOOOOO i set stops on both sides of the Yen and Euro, took 20 pips profits on each of the first 2 lots with the idea of having a one lot free trade, to let it run. Was filled Long on the Yen @117.38. Remaining lot now 60 Pips to the good. I will now set the BE stop and let it go .

Euro was filled @1.2058 Short. Same deal. Last lot is up over 50 pips. Stop to BE, and let it sit.

This was kinda fun. I had all my triggers ready as often i have seen fakes to one side then the other. I kinda noticed a bias in this direction prior to the announcement. (kinda like a runner leaning toward second a bit more than normal) . In this case, my stops were hit, and never looked back.

Worked this time very nicely

my best,

Jim
Congratulations, and that is how you trade the news...

SMJ

PS, Mine are still on.
long usd/jpy at 14:21 for 117.385
closed at 14:41 for 117.889

Felt pretty good about it going to 118, but decided not to chance it.

50.4 pips.. not bad for 20 minutes work.
Yestaday, i avoided the big news. forturnately, this morning, i found i had a good choice, the price is running oppsite my original positons. Now, I can easily get my positions back at better prices.
Expect any good moves tomorrow on CAN Gross Domestic Product?
Try hard, think fast, die young
Quoting smjones
Sure, a channel break is a standard tech signal, but I have found it is usually a slam dunk after a major news event.
Hello SMJ and all,

I have been reading the thread with interest.

I am not at all well read on trading the news, but the strategy always interested me.

SMJ, when you talked above about a "major news event," are you referring to the red or yellow symbols on the calendar here?

Meaning, are you looking at suspected high volatility news items (red) or low volatility (yellow)?

Thanks ahead for any replies.
Quoting Gorilla
Hello SMJ and all,

I have been reading the thread with interest.

I am not at all well read on trading the news, but the strategy always interested me.

SMJ, when you talked above about a "major news event," are you referring to the red or yellow symbols on the calendar here?

Meaning, are you looking at suspected high volatility news items (red) or low volatility (yellow)?

Thanks ahead for any replies.
That is a thoughtful question,

You know, I think I pay attention to all the news releases, but I have found that even though I am there standing by ready to pounce on the effects to price after the news release, It is the more volatile releases that offer the greater potential.

SMJ
Essentially there are many ways to profit from news trading e.g. some people wait for the 5min candle breakout - some for the 15 etc....some look for the "z" pattern (third wave is correct ) etc - but - and this is a big buttt - as of recetly the news is more volatile than ever - it - goes 30 pips up and down - seconds before the release - and the final bang is completely unreleated to the fundamental importance - this is due to the fact the brokers and market makers hedge immediately after the news!!! - I just lost 1000$ on news trading - using the most sophisticated systems (I know many of them as I am sure that Merlin and the others dont reveal............).
So on this note - guys - you should beware - or play for money that u can lose - and beware the slippage .
On the Forex Factory Calendar, where do the forecast figures come from? Who makes them? How accurate are they? Are there other forecast sources that can be used for comparison?
Thanks for the answer, SMJ.

Quoting smjones
You know, I think I pay attention to all the news releases, but I have found that even though I am there standing by ready to pounce on the effects to price after the news release, It is the more volatile releases that offer the greater potential.
I was figuring the volatility might be better higher, but then a trending market on the breakout seemed optimum to me as well.

I have done a preliminary "backtest" (by hand) on about a month of news releases at the 8:30 hour and you're right about the regular and consistent setup: spike at the news, then into channel, and MAYBE a breakout following.

Could you briefly explain the market psychology happening with that channel forming shortly after the news and then breaking out?

Also, sometimes the channel continues for quite some time, even after hitting one of your limit orders (about 5 pips out). Do you just let it ride until you hit a take profit or your stop on the other side? Or do you limit your loses by closing the trade while still in channel?

Please excuse my rabid questions about this. I am intrigued by the thread and the topic since I have left the whole idea relatively unstudied because of warnings from those who have gotten burned trading in this fashion. I am sure you can understand. But still the consistency of the market movement, at least for the month I looked at it, calls to me...
Quoting Gorilla
Thanks for the answer, SMJ.



I was figuring the volatility might be better higher, but then a trending market on the breakout seemed optimum to me as well.

I have done a preliminary "backtest" (by hand) on about a month of news releases at the 8:30 hour and you're right about the regular and consistent setup: spike at the news, then into channel, and MAYBE a breakout following.

Could you briefly explain the market psychology happening with that channel forming shortly after the news and then breaking out?

Also, sometimes the channel continues for quite some time, even after hitting one of your limit orders (about 5 pips out). Do you just let it ride until you hit a take profit or your stop on the other side? Or do you limit your loses by closing the trade while still in channel?

Please excuse my rabid questions about this. I am intrigued by the thread and the topic since I have left the whole idea relatively unstudied because of warnings from those who have gotten burned trading in this fashion. I am sure you can understand. But still the consistency of the market movement, at least for the month I looked at it, calls to me...
When a market is trending up there are more buyers than sellers,
When a market is trending down there are more sellers than buyers.
When a market is in a channel, the number of buyers to seller is about equal.
of course all this is just DOW Theory.

Just before the news comes out there is a flurry of positioning taken by larger players, dealing desks hedging, speculators etc.

When the news announcement comes out the price moves is accordance with the prevailing wisdom of buyers versus sellers. After a few minutes the effects of the actual new content is digested, some of the buyers will change camps and some of the sellers will change camp. This cause the channel.

In a while, if it happens at all, the net effect of the news content will take hold and either buyers or sellers will gain control and a trend will begin again.

Who knows how long that process will take. It really does not matter in terms of time, it matters in terms of momentum.

As far as price hitting an entry stop and then not going anywhere, That Sucks. I wish the market would do what I want... It just doesn't listen to me. Losses in trading are a part of trading.

The only thing I can tell you is, ask your self why you entered the trade. If the conditions are no longer present, that is when you should consider exiting.

ps, I would think this evening should be a wild ride on any JPY from news.
the problem is that is just an opinion and no one can hang their hat on
another persons opinion.

SMJ
IF YOU HAVE QUESTIONS and alot of them like myself...I have found fxcm.com to have very informed reps. They also have alot alot of free learning resources including http://www.fxcmtr.com/education/trad...ndicators.html

GOOD LUCK!!
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