Profiting While Safely Steering Clear Of News Blasts
If you found yourself sitting at a desk in a B17, flying over the South Pacific in 1942, your hands were probably very full. Of all the jobs aboard that combat aircraft – the navigator held as much responsibility as anyone – if not more.
Among the details in the job description – not getting lost amid the chaos of strafing runs made by enemy fighters intent on bring you down. Across the world of Forex currency pairs – when news strikes, it’s almost impossible for many retail traders to keep their bearings.
The result? They lose their way and make trades that are shot down in a matter of minutes – if not seconds – especially during volatile news events. Fortunately, there’s a way to trade the news with the calm demeanor of a good navigator that allows you to profit consistently.
Why so many Forex trades get shot down before making their run
The image most people have of the B17 is one of the bomb bay doors opening and ordinates dropping to their target with great accuracy. For most missions, that moment represented a 5-10 minute window that sat within an 8-10 hour mission filled with danger. The odds that the B17 crew would even make it to their target were shockingly low – unless they had cover/support.
One of the most dangerous periods: the assembly of the squadron before heading out to the target. That’s right, in the chaos of putting thousands of planes in the air and getting them in formation – it was common that a few would go down. Missions were over before they even began.
The same is true for most retail traders when planning to trade the news. It’s over before it can even begin. Why? Simply because they trade before the news, trying to predict both the outcome and the impact on their currency pair(s). When the news, as unpredictable as it is, doesn’t meet those expectations – losses are incurred.
These losses are set in motion before the news even comes out.
Accurately sizing up your Forex news target
Between the bombardier and the navigator, there are two variables that are monitored very closely: airspeed and drift. That assumes you’re in the right location to begin with. But for the bombs to hit their target the release has to factor in the fact that the plane will be flying away and the bombs will essentially need to ‘drift’ or ‘sail’ into their intended position.
This meant that the ordinates were never dropped directly over their target, since they would miss. The same is true when trading the news – if you trade the moment the news comes out – your odds of missing are increased significantly. If you wait until the news comes out, you can look for the reaction and trade on the fade when the market essentially decides to fly on at a speed/altitude close to what it was before.
Using the EUR/USD example here, note what happens to the rate when the October jobs report comes out. The report misses expectations and over the course of the next three or four bars – the rate for the Euro rockets up. Attempting to profit from this volatility in the heat of the release isn’t a way to produce consistent, reliable profits.
Instead of jumping straight into the news blast, there’s a way to enter as the market starts to fade back to relative normalcy.
Trading with the fallout instead of the blast
Gauging the right moment to make the drop was a task that the bombardier made while looking through a bombsight. For the B17, it was the Norden bombsight that was used – one of the most accurate tools in the trade that would only go on to become more accurate.
When siting your entry with the news, you’re essentially looking for the initial impact on the news to peak, and then trade with the fade back to the consolidation zone. The beginnings of the fade can be watched by keeping an eye on the tail of the candles and Order Flow Sequence Tracking.
Simply look at the tips of the candle and watch for increasing Sequential Decline – that is buyers or sellers that are tapering off. In the case of our EUR/USD example – with the bad US jobs report, buyers of the Euro eventually start to lose steam about 45 minutes to an hour in. Then the sellers drove the price back down to the previous consolidation zone.
Just as your entry can be made by watching for the tapering activity, your exit can be made when price heads back to the consolidation zone – in this case the very top of that same zone.
With this approach, you have a chance to measure the impact of the news and trade with the support of historical levels on your side.
Evaluating your pair’s risk for safe trading
The honored veterans who bravely flew on the B17 would tell you that there was no safe seat on the plane, especially when flak started to fly. Many would take the same position when it comes to the news – it’s simply too dangerous.
When evaluating a news event for potential trading activity, consider whether you confidently understand the impact of any releases on your currency pair. Review how your currency pair responds to missed consensus forecasts, or economic news that’s in the same region – but not directly linked to the pair. If you don’t have a general sense of the cause and effect relationship between news and your pair(s) – then yes, trading the news holds too much risk.
If you’re confident that you can analyze the impact and the relative fallout of the news – then start looking at the historical consolidation zones that you believe the rate will retreat to in the aftermath. These retreat zones will serve as your guidelines for entry and exit from a position of safety.
Profiting from a place of safety despite the news
If you were assigned to a B17 crew during World War Two, you had to make it through 25 missions before you could head home. Crewmen were advised not to make close friends with their comrades – mostly due to the fact that only 1 in 4 found their way through the 25 missions unscathed.
Your odds of successfully trading the news can be much higher, simply by steering clear of the flak that your currency pair will violently send your way. Stalk the news as it comes out, watching the actual results vs. the forecast – and the impact on the rate.
Hang back for at least 15 minutes on a five-minute chart and 30 minutes on a 15-minute chart. When the rate starts to retrace back to the previously charted consolidation zone – respect prior support and resistance. Watch for responsive activity and sequential decline as you make your move.
Land, having made your run on profits without a scratch on your account.