Trading the News? Is it possible to be profitable?

[ukulele]

As per the title! A pretty noob trader looking for people to share tips and or tricks or advice against trading the news. I'm preparing for the backlash as it seems this has a negative connotation here; please, keep it productive though.

I have been trying to trade the news recently with some success. At this stage I'm unsure whether to aim for a strict R:R of 1.5 or something else or to trail the price on the 5 minute chart. I usually wait for the announcement, take a position around 1 or 2 minutes after the craziness and if all goes to plan I put my stop to break even within a few minutes and put the stop up if it permits.

Note this is not the only strategy I trade. I use this strategy in combination with other strategies and instruments such as commodities and shares. Ie/ I am not a strict day trader, I can hold shares for months. What interests me in this strategy is that the cost is low (spread only) and there is always news, whilst shares may trade in a range for months.

I'll be posting up 5minute charts of examples, the older charts are ones that I did not trade. I will mention the ones I did trade. I don't keep full on records so I don't know what exactly the news was and what numbers were vs the expected numbers.

First example this one is a minute chart:
Jobs data on 16/04/15 at 11:30 am
Snippet from the age:
Australia's unemployment rate has dropped to 6.1 per cent in March from 6.3 per cent in the month prior, giving scope to the Reserve Bank of Australia to delay any further interest rates cuts.

apologies I don't have another screen shot later...

 

[ukulele]

02: 5 minute chart (I didn't trade this one)
Inflation data on 22/04/15 at 11:30 am
Briefly from the age:
The Aussie dollar has skipped higher and shares have dipped afterCPI data for the March quarter came in slightly higher than expectations.

Headline inflation eased to an annual 1.3 per cent in the March quarter, down from 1.7 the previous quarter.

We can see that the momentum for this carried on for at least 25 minutes, although there may have been some leaks as it looks as if it had run up prior to the release, who knows.

 

[ukulele]

02 again: this one is of the 5minute chart EURAUD. We can see even if you had gotten in right at 11:35, you could set up a tight stop and have made a small profit. Again, this was during early research phase for me and I did not actually trade this data.

 

[ukulele]

03: RBA MINUTES OF MEETING 19/05/15 11:30am
theage headline: "RBA minutes confirm scope for further interest rate cuts."

The first 5 minute candle has really long tails and depending where you got in on this trade it could have been profitable or a stop out.

5min chart AUD/USD.

 

[Trembling Hand]

Looking at a chart after it has happened is vastly different than actually trading something live, no more so than big news releases. If you haven't got a lot of experience of just trading normal price action I would say stay away from the wild times.

 

[ukulele]

I agree Trembling Hand. Trading something live is completely different. In my opinion news in the forex can cause big moves in a short amount of time, which I believe should be exploited (as well as other strategies).

The charts above were to put feelers out there to see if anyone actually traded those events. I am a relatively inexperienced trader with only a 10k account so I was hoping to feed off other peoples experience to add to my own. The biggest thing I struggle with is the psychology/emotion of these times, but I know it can be controlled/ handled.

The attached is an example of a news event that I actually did trade.
Event: June Interest rate decision
Date: 02/06/15
Time: 2:30 pm

Notes:
Whilst the 2:25 candle was printing I put a sell stop order in a smallish distance away from the current price. I was expecting the price to go down after the decision. It hit the order and I got stopped out. My mistake is that the wild swings just before the announcement makes it very difficult to try this method.

I re-entered the trade on the long side @ .76557 and took profits quickly @ .76595. I didn't hold my nerve and I should have held out for more profit. Interestingly, overnight there was some weakness in the USD and it hit .776. This was the beginning of a pretty big move in a very short amount of time.

after this event risk I lost 0.73%



P.S. Did anyone trade the UK CPI data tonight at 6:30pm?

 

[ukulele]

Event: EUROPEAN RETAIL PMI DATA
Date: 04/06/15
Time: 6:10 pm EASTERN TIME

Notes:
PMI Data was stronger than expected and this saw a good reaction from the EURO pairs. I chose the USD pair to trade. Again, I feel like I took profits too early. If I had've trailed my stop on the 5 minute chart this would have run quite far. Regardless, this was about a 2% win.

I also traded this on the EURJPY pair and basically broke even.
Has anyone got any thoughts on what you would do differently for this trade? Or if you did trade this event please speak up.

 

[CanOz]

Trading the news can be suicide. However if you pick a nice liquid instrument and then set yourself up properly then it can work. Guy Bower has a course specifically on trading NFP day.

 

[ukulele]

I think trading high leverage in general can be suicide with no stops in place. I usually only risk less than 1% on every trade. The major pairs provide enough liquidity that gapping is not going to be an issue. I do concede that gaps can occur though!

Any way of getting that Guy Bower course?

It's important to note that quite often the news only reiterates what the longer time frames are already doing. Right now we see good trends on the GBP pairs. I'm currently looking at the four hourly chart and they look like they are pulling back a bit (GBP/USD and EUR/GBP).

There are some employment figures and minutes due on the GBP side due at 6:30pm eastern time. If the numbers are better than expected that could set up further legs up/or down. Of course the numbers can point the other way, in which case I would be less inclined to take a position (counter trend). The numbers can come in on expectation and it may not move the market much; I am also less likely to take a position in this instance.

On the EUR/GBP cross there is greater risk because at 7pm we have CPI data coming out of the Euro zone. Wouldn't it be too good to be true if we get strong numbers from UK @ 630 then weak numbers from Europe @ 700?

Furthermore on the GBP/USD cross we have the rates decision at 4am. I highly doubt they will raise rates this time however traders will be turning to Yellen's address at the same time. Is it going to be September this year or Q1 2016?

Pretty busy night! Good luck to all.

 

[CanOz]

I think trading high leverage in general can be suicide with no stops in place. I usually only risk less than 1% on every trade. The major pairs provide enough liquidity that gapping is not going to be an issue. I do concede that gaps can occur though!

Any way of getting that Guy Bower course?

It's important to note that quite often the news only reiterates what the longer time frames are already doing. Right now we see good trends on the GBP pairs. I'm currently looking at the four hourly chart and they look like they are pulling back a bit (GBP/USD and EUR/GBP).

There are some employment figures and minutes due on the GBP side due at 6:30pm eastern time. If the numbers are better than expected that could set up further legs up/or down. Of course the numbers can point the other way, in which case I would be less inclined to take a position (counter trend). The numbers can come in on expectation and it may not move the market much; I am also less likely to take a position in this instance.

On the EUR/GBP cross there is greater risk because at 7pm we have CPI data coming out of the Euro zone. Wouldn't it be too good to be true if we get strong numbers from UK @ 630 then weak numbers from Europe @ 700?

Furthermore on the GBP/USD cross we have the rates decision at 4am. I highly doubt they will raise rates this time however traders will be turning to Yellen's address at the same time. Is it going to be September this year or Q1 2016?

Pretty busy night! Good luck to all.

I have a theory I'd love to test, but I reckon the numbers don't mean as much as where the majority of stops are in any market. For example, if the majority of traders are short the Dax at the moment....then we get news, German unemployment, the market makes a big move IF it can sweep out the stops....

 

[ukulele]

One thing for sure is that the Market Makers make a killing on event risk. The wild swings and wide stops at the time, they'd honestly smash it.

I agree, collecting stops is needed for any significant move. It'd be impossible to get any numbers though. You'd have to be a big market maker.

One example from last night, of which I was a victim! I actually got up to trade the US interest rate policy decision at 4am. I put a buy stop just before the announcement about 10 pips away from the current price, my stop was a recent swing low on the 5minute chart. So what happened: announcement came in as expected, price shot up, activated my buy stop, once people realised that the economic forecasts were down graded this turned the sentiment bearish. So I was stopped out. I went short about a minute later and got back some of my losses end result was about 0.4% loss. This news proved a big mover, just have a look at the US cross on the 5 minute chart from 4am until now.

Charts to follow. I'm trying to keep posts with charts in chronological order. I still have to catch up a bit.

Trading update:
UK employment +1.4% (630pm last night)
US interest rate decision -0.4% (4am this morning)
NZ GDP basically break even, couple of pips up (845 this morning, just then)

I am surprised that at the lack of traders adding news events to their repertoire of trading systems. A good trader could have made a great return on those three events. The euro data was on target and didn't seem to move the market at all.

 

[Trembling Hand]

One thing for sure is that the Market Makers make a killing on event risk. The wild swings and wide stops at the time, they'd honestly smash it.

I agreea collecting stops is needed for any significant move. It'd be impossible to get any numbers though. You'd have to be a big market maker.

Who are these market makers you are talking about in the fx world?

 

[ukulele]

Who are these market makers you are talking about in the fx world?

I trade with CMC markets. But I suppose any of the big players IG Markets etc...

 

[ukulele]

Event: US NON FARM PAYROLLS
Date: 05/06/15
Time: 10:30 pm EASTERN TIME

Notes:
The NFP were better than expected so I guess that meant the likely hood of a US interest rate rise increased for this year.

I got in around 1033 pm.


After the print of the 1030 candle I move to a little above break even, and trail the candles on the 5 minute as soon as they finish printing.


Stopped out a couple of candles later (second red candle) for approx 0.8% win.


All in all not a bad trade, not great either, +15.1 pips. I can't remember what happened the next hour.

 

[ukulele]

Event: CAD BUILDING PERMITS
Date: 08/06/15
Time: 10:30 pm EASTERN TIME

Notes: Cad housing starts were a lot higher than expected, making the cad stronger in the short term.

Entry:


Moved quickly to break even. The 2nd candle was mostly red but turned green and I got stopped out.


Red candle marked is the candle the news came out. Ended up being a very nice up trend on the 5 minute chart. This added $1.05 to the account lol. I wasn't so sure about the impact of this news so my position size was smaller than normal.

 

[ukulele]

Event: AUD HOME LOANS/INVESTMENT LENDING/ANZ JOB ADVERTISEMENTS
Date: 09/06/15
Time: 11:30 am EASTERN TIME

Notes: I can't really remember too well but I guess the numbers were good? Reducing the apparent probability of another interest rate cut. The whipsaw of the first candle was pretty intense and made me quite nervous. I took a smaller position with this one. This whipsaw would have caught out a few stops. Due to the whipsaw and the second candle being red I moved my take profit to the upper wick of the first candle for a small profit. I am also at work during this time, so I don't really want to monitor the trade for half an hour.

Knowing my luck, it shot up past the 1031 candle. There is no way to pick tops I guess.


I was watching the price action and it just didn't seem to change the sentiment enough. I'm always weary if there is a whipsaw and the 2nd candle is the opposite colour to the news candle. Chart at 1142am

 

[ukulele]

A quick note. All news does not have equal effects on the market.

A bunch of data due from the Swiss at 530pm. My first time trading swiss. Decided against it because there was no reaction, and the spreads on the swiss were too high.

UK CPI due at 630pm, I did trade this and got stopped out for a loss of around 0.6%. I should not have traded this as the news was not all too different from expectations and the market didn't react. Charts to follow when I catch up.

Look forward to the US CPI data in a few hours.

 

[AverageJoe]

I trade with CMC markets. But I suppose any of the big players IG Markets etc...

You couldn't have chosen a worse market maker broker! Your spread must be quite a few pips more than the tighter and more competitive brokers out there. Do a google on A and B booking by broker model.

When I started I also had the same curiosity as you in news trading. The straggle trade that I see from a few promoters where you place a buy and sell some distance away from market price just before news and bingo the spike takes you in one direction and you cancel the other side of the trade. Provided the news generate a certain direction, sometimes it is indecision and you get filled both direction or worse double whammy loss in the space of a few seconds. If you are unlucky spreads really widen and you get filled at the top of the candle for a massive slippage usually the case.


The only way I have known traders make money is by using an EA running on a VPN situated VERY close to the news server or SEC. Depending on the strategy of the EA, the spike may have MANY little scalping trades. I have not done it myself but I suspect the theory is sound but in practice there are hidden problems. Best to stick to normal price action and Trembling Hands advice on the daily TF then working to a smaller one and not the other way around.