2 Highly Profitable Forex News Trading Strategies that Matter
In my previous post, we identified the Forex news reports that are trade worthy. Knowing what the tradable news items are is one thing, but knowing how to trade these news releases is another.
With this at the back of our minds, I would like to share with you two highly profitable Forex news strategies that I have used with great success over several years. Both are highly profitable and can be mastered in a short time.
Forex News Trading Strategy 1 – John Wayne
Let’s say you want to trade the next Retail Sales reports and plan to use EURUSD for the trade. Forecast is for a 0.2% increase in retail sales. It is the usual practice to use triggers for the trade. Triggers have to have enough deviation from the consensus numbers to match the required volatility that would make the news item worth trading. For the retails sales, a trigger number of 0.1% is sufficient.
It is essential to know your trigger numbers before the actual numbers are released. This helps you decide faster if the news release is tradable or not.
Step by step:
- Get the forecast numbers and the trigger numbers on the buy and sell side. If you don’t know where to get them, download FxPulse. It’s free and displays the forecast all needed numbers directly on your chart.
- Write both numbers down.
- When the news comes out, place your trade immediately if your trigger numbers allow you to do so. Personally I use the 20% rule.
Shortly before the news comes out (30-40 seconds) open the order window and set max deviation to five Pips. Sure, slippage is an unwanted side effect from news trading but as the market moves fast during news releases, it is something we need to live with.
If you are doing it right, your news trades will look like on the screenshot below:
Although it sounds very easy (Like taking a candy from a little child. BTW…that’s something you should not do) it will take some practice to master the “John Wayne” news trading strategy.
When you just start with it, use a demo account, and once you feel ready for “lice action” use small lot size for the first 10-15 news trades.
Forex News Trading Strategy 2 – Straddle Trading
The straddle trading strategy is just as the name suggests; you are placing two pending orders (Sell Stop and Buy Stop) on both sides of the divide, effectively straddling the market price. The buy order should be placed 20-25 pips above the actual price, the sell order 20-25 pips below. If your broker supports one cancels the other (OCO) orders, please use this type of order for the straddle trade.
When the actual number from the news comes out, one order will be executed while the other order will be canceled. The straddle strategy works well in most cases.
The problem usually arises with the timing of the placement of the orders. There have been cases when extreme volatility caused choppy price swings to trigger both trades. As such, the Forex straddle strategy is not recommended for high impact volatile news releases like the NFP.
Step by step:
1) Shortly before the news is released, place a Buy Stop and Sell Stop orders (OCO if supported by your broker) 20-25 pips away from the market price. SL for the buy order should be the price from the sell order and visa verse.
2) When the news is released and the market starts to moves in one direction you have not much to do. Just close the other pending order manually and enjoy the ride and make sure you get the most profit out from the trade.
Tip: There are several expert advisors available what places trades automatically before the news comes out. Commercial and free versions. If you are interested in a straddle Expert Advisor, I recommend to stay away from the commercial versions. They are basically nothing else then copies from free versions you can find in several Forex forums.
If it really this easy to trade the news, why do many traders fail at it?
The main issue is that currency traders need to understand that different news items respond in different ways, and as a trader, you will have to understand how and why this happens, then practice and do your homework.
Trade the news only with a broker what offers STP or DMA, be disciplined and don’t expect to become a professional news trader within a few days. Don’t be greedy and start with small lot sizes (0.01 or 0.10). You can go a step further by getting your news in real time using FX Pulse, which is just perfect for news trading and 100% free. You can download FX Pulse here.
Happy News Trading!
P.S.: Some comments please!