In today forex faq, we have a good question from one of our fellow traders regarding trading the news.
Below is the question:
In my trading system which is based upon trend, I just want to take some extra money from the Major News, but I just stumbled again and again in the pitfalls of the market.
I find that the market usually makes big move against the trend even when the news is pretty positive which should cause the price to continue its trend. This movement usually cause my stop loss to get hit and then after a big draw down, the price started to move in the direction of the trend again. It happens again and again.
I placed Pending Limit Orders 15 Pips above or below the current Price before Major News and it always gets hit. How to determine if it’s only a false breakout or a retracement and should I set my stop loss even tighter to soften the losses from News Events?
I just doubled my account in a month but These News Releases always draw my account down a big time…how to prevent this (or should I miss to make some extra Money and therefore ignored the News completely?)
It seems that you are a trend trader and the problem you are facing is that the price goes against the trend even when the news benefits the trend.
First of all, the problem with news trading is you will never be able to predict the mindset of traders upon news release. You may think that the news benefit the trend but there may be more traders who believe that the news is not beneficial to the trend and therefore the trend reversed.
I have seen price moving 100 over pips in a particular direction against the trend before it slowly moves back to the direction for trend. Therefore if you plan to make profits from these insane movement, it is more like a gamble than trading as you will never know where the price is going to move.
Personally, I never trade the news as I only enter trades that are according to my strategies. I must admit that some of the losses that you have seen in my performance report are due to news release, however such occurrence are limited and therefore will not affect my profitability at the end of the month.
I will suggest that you ignore the news and trade based on your trading strategy alone. To me, the best way to make money from trading is technical analysis and it is exactly how I manage to make money every month from trading.
From your email, it seems that you already have a good strategy on hand that help you to double your account in a month. So why bother to trade the news, just stick to the strategy you have and you should be able to make consistent income from trading.
If you only manage to make profits from your strategy for one month so far, I will suggest you to test the strategy out for another 3 to 4 months. As long as your strategy makes you profits consistently for 3 out of the 4 months, then I must say that you have a good strategy on hand.
If it does not, I will suggest you to refine your strategy or look for another strategy that can make you consistent profits.
I hope that I have answered your question. For those of you who are reading this post, do feel free to give your comments below or share your experience in news trading with us.