Trading the Economic News – EGM Trading Room

As the second week of the Explosive Growth Mentoring series trading room comes to a close, we had some market excitement in the form of economic news. This morning at 8:30 New York time, the PPI and Retail Sales numbers were announced. Typically when important news is released, the market moves quite a bit based upon how much the released numbers differ from the anticipated numbers for each item.

How Does News Move The Market?

News Report (forexfactory.com)

News Report (forexfactory.com)

As you can see in the image on the left, the US Core Retail Sales month over month came out slightly negative (only 0.1% less than anticipated) but in addition, the prior month’s value was reduced to 0.3% from 0.4%, so these taken together caused a negative reaction in the US Dollar.

How NOT to Trade the News

I was watching the USD/JPY just before the news and it was moving down rather quickly. I thought that it might make a fairly large move if the news came out above or below the predicted level, so I continued to watch it. Trading news is a tricky thing. Trying to anticipate the movement before the news is released is just plain gambling. The news (and therefore the price) can come out in either direction. The predicted level of the news is already discounted into the price (i.e. already taken into account), so only a change from the anticipated number will cause market movement. Entering the trade in the melee after the news release – when the market is moving fast – is a bad idea because you may not get your market order filled until the move slows down, right at the end of the move.

The Plan

USD/JPY News Trade

USD/JPY News Trade

So my plan is to wait for the move to stop, retrace, and then I enter a trade in the direction of the original news impulse. I will usually put a piece of the trade on at the 38.2% Fibonacci level and then, if it continues to retrace, I’ll put another piece on at the 61.8% Fibonacci level and target the end of the initial impulse.

The plan worked like a charm this morning. Price went to a daily resistance level just above the 38.2% Fib level and dropped nicely. Hit my profit target in about four minutes. That’s the kind of trade I like. This news trading strategy works very well for most significant news events, most especially the US employment numbers (Non-farm payroll) that come out the first Friday of most months.

Maintain Your Risk Rules

Be careful trading the news and always maintain your risk management rules when trading. The market never does what you expect and you should never “bet the farm” on any trade.

Have a great weekend and we’ll see you on Monday!

Tim

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