Traders need to learn how to navigate volatile markets by implementing a solid trading plan and adopting sound risk management. This article provides effective tools for traders looking to trade post release.
Other articles in this series:
Post-release trading strategies
1. Trend following strategy
This strategy involves the use of multiple time frames, as well as, well-defined levels of support and resistance that come into play after a news release.
Traders can adopt this strategy when the current market price is approaching a well-defined level of support or resistance but isn’t quite there yet. The volatility after the news release has the potential to push the market toward the trendline. If price respects the trendline, traders can look to trade in the direction of the trend and trade the potential bounce.
The following 4 points are of assistance for this type of trade:
- Determine trend direction on a daily chart
- Draw support and resistance lines
- Select a forex time frame anywhere from 1 – 4 hours
- Buy near support in uptrend and sell near resistance in downtrend
Keep in mind that news releases have the potential to break through longstanding levels of support and resistance which underscores the importance of using tight stops when pursuing this strategy.
2. Dual spike breakout strategy
This strategy involves waiting for market volatility to reveal a range before trading a break of that range and makes use of a five-minute chart. For illustrative purposes this section incorporates the US Non-Farm Payroll (NFP) release as this often has the greatest potential to move the market.
After the NFP release, wait 15-minutes for three five-minute candles to close. Take note of the highest price and the lowest price of the three closed candles. Next, place an entry order to go long at the highest price and an entry to go short at the lowest price. Once an order is triggered, targets can be set at twice the distance of the high/low channel while stops can be set above resistance for short trades and below support for long trades.
The disadvantage of this strategy is that volatility can push price above or below the short-term range, triggering an entry order, and then immediately reversing to hit a stop loss.
This strategy can be applied in the following way:
- Customize the chart settings to show 5- minute charts
- Take note of the highs and lows of the first three candles
- Set entry orders when price breaks above or below the range
- Set stops and limits
- Delete the unfilled order
<alt image desc> Dual spike forex news trading strategy
3. News Reversal Strategy
The market can trade in one direction immediately after a major news release only to reverse and trade in the opposite direction.
The news reversal strategy looks to trade the news after the release and focuses on a sudden, sustained reversal in direction after a strong initial move in price.
The reversal could be the result of algorithms or, the market as a whole, feeling that there was an overreaction in price – prompting trades in the opposite direction.
The downside of this strategy is that no reversal takes place and the price continues trading in the direction on the initial spike.
How to implement the news reversal strategy:
- Initial spike in price: News with great market moving potential generally lead to a spike in price as the news is released.
- Look out for a reversal: Traders can wait 10-15 minutes for the reversal to bring price back to where it was before the release.
- Entry: Enter as price breaks above/below pre-release levels.
- Set multiple target levels: Traders should consider setting multiple target levels. As one is triggered, traders can take profit on half of the position and adjusting the stop on the remaining position to breakeven.
Trading forex after the release: Conclusion
Trading the news after the release can be a more conservative way to approach news trading. This is due to the emotions from the news release subsiding allowing a trader time to plan a technical set up for their trade. Regardless of your trading approach to news trading, risk management and utilizing small amounts or no leverage is critical to maintaining capital in your account to make the next trade.
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Trading after the news FAQ section
What type of news is most likely to move the market?
US economic data is so influential within global currency maekets that it is generally seen as the most important news. Additionally, it is important to note that not all news releases lead to increased volatility. Rather, there are a limited number of major news releases that have previously produced the greatest potential to move the market and some of these include:
- US non-farm payrolls
- US GDP
- Us Federal Funds Rate announcement
- ECB refinancing rate
- Australian employment change
