Trading College mentor, gives us some recommendations as to how we, as TA traders, should be trading around the news announcements.
So, how should we be trading before, during and after news announcements?
Day Trading (Short Term Positions)
“Two hours before a news release about a currency or a commodity, I won’t open any new trades related to those respective instruments,” Fed divulges. “After the news is announced, I like to let the market settle itself so that I am more likely to trade in response to traders’ reaction to that news rather than my own personal response to it.” Here, Fed is showing us a clear difference between a technical analysis trader and a fundamental analysis trader, in that the TA trader responds to how the market responds to the news rather than the news itself (which is what a fundamental analysis trader would respond to).
“What’s always fascinating,” Fed points out, “Is that you will often find that, while the forecast is negative and the news is negative, you see a positive response in the market, and it is only the market’s response that we technical analysis traders should be paying attention to.” So the critical factor here is not the forecast or the news release but how traders react to these announcements. “As a technical analysis trader,” Fed explains, “I pay zero attention to the actual news and put all my attention on my technical analysis where I will see the actual reaction of traders. I find points of support and resistance and these are what I am going to trade around, not the news announcements themselves.”
If he’s already in a trade before the news comes out, Fed will always manage the trade before the news release. “If I’m in a small profit, I will take it, or at least move my stop loss to break even… always minimizing my risk on the trade.”
Swing Trading (Long Term Positions)
“When you are swing trading,” Fed says, “News releases affect your trading in a more limited way. A swing trader is looking at a stop loss of 100-120 points and a potential target of 150+ points, and news announcements are not likely to move the market more than 30-50 points. As a swing trader, you are typically going to be leaving your trades open for around 20-60 days on average, and with news announcement happening almost every day, you cannot open and close trades around every announcement. You have to learn to live and trade around news.” That said, Fed points out that there are exceptional cases when it comes to big announcements such as Non-Farm Payroll or Interest Rates decisions, which can be big market movers. “You still need to manage your positions appropriately depending on what’s being announced,” he advises. “You might want to consider moving stop losses or closing out and taking a profit before a particularly big news announcement.”
Thanks for the wise words, Fed, that’s all very clear and sound advice!