How to trade reversals after the news

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Posted by on Thursday February 13, 2014 15:19:49:

As you might already know, trading currency pairs tend to be more tricky during news events. If you were trading a pair like the EURUSD, you should expect some movement during hot news releases related to the USD or Euro. I do know how to trade the news but It is much easier to just trade after the news and after the market has actually moved.

Let's take a news report like the USD Core retail sales for example. This is a very hot news report and we can see that it is normally indicated by red on some forex websites like and

How those news report affects the currency is that it goes bullish for the said currency(USD in this case) if the news report is related to and is favourable to the USD. In those forex calendars which normally display the timing and impact of such forex news, you'd see figures listed by the side under heading such as Previous and Forecast. The market would normally trade in the direction of the forecast at least before the Actual results have been released. If the Actual results were then released and it's far away from the Forecast, then there would be some major movement and you can expect the market direction to change by as much as 40 to 100 pips in a few minutes.

Personal advice for those who can't trade the news is to simply close down their positions beforehand and just wait for after the market has reacted before choosing to trade. Personally, I only trade the news when I've understood the news event but it is much easier to just wait for the market to react before you open your position. Staying away from the news could have actually saved a lot of people from MARGIN CALL.

I've also noticed that news reports tend to have the most impact about 2 to 5 minutes after the actual results have been released and after a strong bullish or bearish points have been made, the price tends to go back to the average range.

If you trade the EURUSD like I do, you would be able to catch some strong solid moves but you should not overtrade your capital and you should be able to hold your position even if the market moves by up to 200 pips. Generally, I like opening multiple small trades after the news in order to catch some Pips based on the expected price reversal.

Let's say that before the news, the EU was trading at 1.3400 and then the news is highly favourable to the USD unexpectedly, the value of EU would drop and it would go really bearish for a while before returning to normal range. It could go as low as 1.3320 and if it's a bit steady, you can decide to buy a small qty. So what I'd normally do is wait till it's made new lows for the day and then place about 3 or 4 positions with small capital and hope to catch 50 pips each when it reverses to normal price.

I could buy multiple 1000 units of EU as it goes lower or I could decide to just risk it and buy a single order of 5000 units, counting on some reversal action. That's if I'm trading with about $500 capital. If I were trading with more capital, I could buy multiple positions too.

The bottom line is that the price of a currency pair tends to reverse after a strong move in price and this normally happens after the news. Don't trade immediately the news report has been released but wait for like 5 or 10 minutes and then you can just trade in the opposite direction by buying or selling. If you would want to limit your risk as I normally do, you can buy multiple quantities but with small capital on every new low(1.3420) or every new high(1.3500)

Don't be in a rush to trade reversals immediately after a strong move, wait for it to steady and for the newbies to get burnt before opening your position. You could be surprised with how many greens you'd be getting by trading against strong market moves. The currency market is like an elastic band, it tends to fall and rise but always stays within an average range over a long period of time.