I am looking for some advice / opinions on what to do with my trades before top tier news comes out.
I have been trading for 8 years and was taught from the beginning to exit trades before economic news is announced (to avoid being taken out on spikes and unforeseen sharp movements). So I have always closed trades a few minutes before the event. I trade off the one hour chart after considering the larger time frames, and recently I have noticed that I am closing a lot of my trades near my entry price just before the announcements, only to have it move to where my limit was placed when the news comes out. (obviously it doesn’t always go my way)
An example is yesterday (19.3.14) I was long USD/JPY @ 101.5 from 8 am GMT until just before the FOMC rate decision, I closed out on 0 pips, and when the news came out it went straight to my limit at 102.4.
Am I doing the right thing by closing out or is there a way to improve?
I am still unsure because I think reducing your risk is very important.
If you have any advice or opinions on this please let me know.
It’s a game of probabilities. You need to ask yourself “historically with these trades, should they have been left open and not closed out, am I net profitable”? In these circumstances it would also be important to look into slippage, due to faster moving markets - something which cant really be factored in without including an ‘error margin’ on your calculations.
The problem is that in in most instances the markets are neutral in the hours leading up to top tier news events, and so this is why your entry price is going to be very much near to your exit price as the range of the market will be thin.
If you still don’t want to trade the new event its self then you may want to trade the ‘correction/continuation’ of the news event in question once it has been announced and the initial rush has passed.
Personally I don’t believe in closing trades prior to news as I believe in most instances the market has expectations of the news outcome, and typically before the news you will see some price action which displays the bias of the market - even before the news has been announced.
this is just my personal point of view: the market goes up and down; predicting which way it goes is as difficult as predicting how a news event would turn out. so i consider news events just as a catalyst that speeds up the whole process of price moving up or down. that being said and having already paid the price for a trade (spread, commisions) i would “gamble” and let the trade run, just as there was no news event alltogether (many say trading is gambling anyways).
One of the best pieces of advice I got. “Be in the profit business; not the picking tops and bottoms business.” Every thing you do from birth on is gambling. As Jezzode says, trading is about the balance f probabilities. I found if you think about it that way and then apply profits not tops and bottoms, it becomes a little easier.
On the advice regarding exiting the trades before the big news, it is spot on but more for the inexperienced traders…and once the volatility settles down, you can continue trading. But more specifically to your query, on exiting the trades and running a no show on account of it, most experienced traders, leave a few of their orders open to ride out the volatility. It all comes down to probability, similar to the yen dive…Jezz is spot on…
+1 on trading probabilities. One way to improve is by studying how your currency pair has reacted to previous releases. Which direction does it usually take (and by how many pips) when the report comes in strong, weak, or as expected? Are there any other events or catalysts that might influence the latest release?
I guess it takes practice but if you’ve been trading for 8 years what’s a couple more months to practice trading the major reports right?
I think one of the major tactics that traders use before trading volatile news is to use options to hedge their trades. For example before the FOMC on Wednesday when EURUSD was 1.3940, many people were long. In this case you could be long expecting it to break 1.4 and beyond. However, this exposes you to the downside of losing money if you are stopped out. Hedgers would buy a put option at 1.4 at the same time (the option to sell EURUSD at 1.4 before April). This would obviously cost a premium. So if EURUSD breaks 1.4 and beyond on the news, the trader can place a trailing stop in the money at 1.405 and ‘have a free trade.’ Alternatively EURUSD could break below 1.3890 making the trade lose - however, they can exercise their option and sell at 1.4 which would still hopefully keep them in the money (depending on the premium).
