Trading the News: US unemployment

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Posted by on Thursday March 1, 2012 16:46:51:

From a low point of about 1.3834 on March 10, 2011 , the EU/USD pair went up to 1.3971 by 3.00 pm making more than 100 pips within a few minutes after the news on US unemployment was released.

If you have been trading the news, you would find out it is one of the best times to maximize your profit from trading and it could also be one of the worst times to lose huge if you were holding a non favourable position.
Before US unemployment data came out on Thursday 03 April, the expectation as seen on was for it to go a little higher to 394k from 388k giving that it had been doing well in previous times but the final result turned out to be 368k which was an almost decrease from it's original value.
This may have caused a lot of traders huge losses and especially those who have taken positions in anticipation of it causing a bear in Eu prices which had been bullish earlier. I guess most people were expecting a fall and so were in sell mode.
One mistake some new traders would make would be not setting an exit stop loss pt.

How professional traders would have handled this situation:

Normally one would have been on sell mode given that the expectation was high and bearish but since with news events, one can never really be too sure, the best thing to do when trading the news is to trade a win - win situation. This involves trading in both direction and allowing one to continue if the other was no favourable.

For example, if the price prior to the 2.30pm news on US unemployment was at 1.385, you could do the following using win-win system:

- Place a buy stop at 1.395
- Also place a sell stop at around 1.375
- Position is created for the first one if prices go up and you're in profit mode else position is created with sell stop if prices dip by ten pips and you'll still be in profit mode
- Set your exit target or take profit at say 30 pips or more
- Set stop losses at 20 pips say 1.375 for buy stop and 1.395 for sell stop
- Now you stand a greater chance to profit from the news whichever side it goes
- Remember you should also close the remaining order if one of them first get executed.

This is a safer way to trade the news especially when one is not too sure of which side it goes.

Another way you could trade the news is to first analyze the news item and then just take one position based on your analysis in order to take profit but always remember to set and exit stop loss and wider exit target or TP. This will help you profit from the wide margin of prices which news events normally brings. You could set a stop loss witin 20 pips but a take profit of 50 pips depending on how impacting it is on currenc prices. You may also leave the take profit open if you want to watch how far it will go like at the last scenario on thurday when a news report sent EU up by more than a 100 pips within 15 minutes

Tips: Imagine what I could have done with 100 pips?