Hi, I orginally posted this in the newbie section, but it may be better off here;
I’m newish to fx and have been paper trading for a while. I’m hoping someone can shoot holes in my strategy before I trade real money and lose it. Recently I have been trading interest rate decisions from central banks and it has been working and I’m wondering if it is just plain luck or something more. This is an example of what I have been doing:
Recent Norway Central bank interest decision using USD/NOK
Using 15 minute timeframes, prior to announcement I place a pending buy stop order and a pending sell stop order about 50 pips above and below the current price of 5 lots leveraged to 100:1. I placed a 4 pip stop loss on both pending orders. In the minutes leading into the announcement when the trade was becoming volatile I dragged the orders so that they remained roughly 50 pips from the current price right up until the announcement. In this case the Norwegian central bank held interest rates against the expectation of a 0.25% drop causing the NOK to strengthen. It took out my sell stop order and I gained $10000 profit before deciding to close the order and I cancelled my open buy stop order. I also tried this exact same strategy on the US nonfarm payrolls trading the EUR/USD and gained a $1350 27 pip profit
Yesterday I tried the exact same strategy with Australian central bank interest rate decision. It was expected that Australian interest rates would hold and they did but it was a close decision and the AUD strengthened against the USD as a result. I only had roughly a 30 pip gap from what the current price was at the time of the announcement hit but this time my pending buy stop order did not get filled. Was this simply because of the large volume at the time passing my order? Should I have remained at about a 50 pip gap or a bit more to increase the chances of it being filled?
Also does the size of the lot make any difference as to whether an order gets filled at a time like this or is it irrelevant?
As an extreme example, what are the pitfalls of someone simply putting in a large order of 100 lots leveraged at 100:1 on either side of an interest rate decision to take advantage of the major move. Even if you put in a 5 pip take profit limit, this is still a $5000 profit as it’s unlikely a whipsaw type movement would happen on such a news event as an interest rate decision. I know there is something I’m missing here as it couldn’t be this simple.
You actually mentioned the big risk at the end. It is entirely possible for the market to first go one way and trigger one order, then turn around and go the opposite way, triggering your other order. Moreover, after triggering the second order it could very well reverse again, leaving you with losses on both legs. Stay in the markets long enough and you’ll see it happen.
Potentially equally as frustrating, given that your 4 pip stop is insanely small, you could see your order triggered, a little reversal trip your stop, then the market carry back on in the initial direction. Your stuck with a loss and the market off to the races.
Its an insane idea, almost certain to wipe him out eventually.
His only chance of success is to scalp each position, place a tp 1 or 2 pips from his entry trigger, but widening spreads could prevent that and force him to wider tp’s and added risk
It is a risky strategy in my view. Not sure what type of broker you are with, but if you are trading with a variable spread broker, interest rate decisions tend to widen the spread (and this is normal). If you are trading a complete cross such as GBPNZD for example, the spread itself can get wide enough to trigger both orders.
Also there is a ton of a difference between interest rate decisions and trading something like NFP… let’s call it labor market report.
With interest rate, atleast at face value it looks like a binary outcome. Rate hike or no rate hike. Price reacts accordingly (at least for a while and ignoring the fact of how the monetary policy statement was worded).
With something like jobs report, you have different factors in play. Not only considering above/below estimates on both the job count change + unemployment rate, there are also revisions etc which do play a role.
You mentioned you were paper trading this. That is where the biggest psychological difference is. No matter how hard you disagree, psychologically you are not taking any risk with a demo account.
Try putting in $10k of your money and attempt doing the above and i’m sure it will turn out to be a different story.
You could however put this strategy to test for something more simpler like inflation or GDP, it could work and even if price moves against your position, chances are you can get out on a pullback with much smaller loss.
The pitfall is that it is only a matter of time before one single trade puts your account to ZERO or lower. When a hundred pips can wipe you out completely you are statistically toast where you stand.
It was a nice clean move on audusd. almost no retracement either.
My chart says the big candle was at 29 minutes past the hour… interesting!
Are you sure execution of your pending order was possible at the time? e.g. it would not have exceeded your free margin?
if an order is skipped or SL not performed, could be a bit of a problem, lol.
the market can be unpredictable and whipsaw etc, there is no guarantee. stoploss would hopefully cover that.
please keep us posted how you get on with your news trading! thanks.
thanks.