Three Ways To Trade Forex News Releases
1. Initial spike
2. Initial spike retracement
3. Retracement that occur several minutes to several hours after the release
It is not possible to trade the initial spike and consider sub-components. Trading the initial spike means reacting to the main component release and acknowledging the fact that a sub-component or sub-components may come back and bite you in the pocket-book. The sub-component that often does this is prior months revisions. As a rule of thumb the revisions will cause some intermediate price action but the current number is clearly the more important of the two.
Watch out for benchmark revisions. These generally occur once a year and can be lethal.
Some key indicators have a headline and core reading CPI numbers for example. It is best to trade the number that the Central Bank of the respective country focuses on.
It is possible that the very first price move (a second or two) is not the one that is reacting to the news that you are actually trading; you need to get the “right” information and then place your trade. Reacting exclusively to the initial price action may get you in the “wrong” trade. Given all the drawbacks to trading the initial spike, statistics show that if you can jump in close to the pre-release price on tradable key releases you will do great.
As many of you know jumping in to catch the spike is extremely difficult, if not impossible. If you can do it, then do it, and if not, there are other strategies to consider. There other ways to trade the key new releases, such as reverting to technicals when a release is close to forecast.
When the news is somewhat bullish or bearish but not tradable (not a big surprise) the technical condition of the market oftentimes becomes clear from the ensuing price action. Especially when an indicator has a clear history of at least trying to move in the direction of the news.
The big guys respect the news and will hold off taking technical trades until the news is out of the way. So if the news is as expected, they will go ahead and take the technical trade. You should note how price moves significantly even when the news as expected. When looking for a trade opportunity, we consider how hedge funds adjust their positions even when the news is as expected.
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