Okay so I have a question here that maybe some of the advanced traders here could answer. I’ll try my best to make this as simple as possible and add equations so the newbies can understand too.
Background: When it comes time for NFP news (biggest news release each month), the market often swings a VERY large amount of pips in one direction which makes for a great trade opportunity. However, most people do not trade news because either their entry or exit order slips and they would lose a ton of money in seconds.
My question is: what if you used a margin call as your stoploss?
I’ll give an example here to illustrate my point. I hope that my math is not wrong.
Let’s say you have $6,000 in your account.
Seconds before NFP comes out, you enter a market order to buy or sell 5 standard lots ($500,000). [I]Assumption: This market order is executed with no slippage.[/I]
Say we have a 100:1 margin so your equity held for margin would be $5,000 ($500,000/100 = $5,000).
That leaves us with $1,000 left for available margin, which means $1,000 is the max we could lose before we get a margin call.
With our 5 standard lots, that would mean we would get a margin call if our trade goes against us by 20 pips ($1,000/[5 lots*$10 per pip] = 20 pips). [I]Assumption: spread is fixed and negligible.[/I]
As soon as NFP comes out, price does not swing up and down. [I]Assumption: Price swings quickly in one direction only.[/I]
With the margin call serving as our stoploss and the assumption that NFP swings in one direction, we would essentially have a 20 pip risk and a potential of earning more than 100 pips if NFP swings in your direction. Meaning, we would risk losing $1,000 but have the potential of earning $5,000 (100 pips5 lots$10 per pip). That would give us a risk reward ratio of at least 1:5 with a 50% chance of winning… which is amazing!
Whew! That’s it. Now taking all the assumptions into consideration, would something like this work?
It’s about 50/50 that when news comes out, it dips heavily the other way before it goes in the final direction.
If you had pending orders going either way, you could suffer a big loss one way before you get the gain triggered. Not to mention getting an order filled at the bottom of that spike. They happen faster than you could pull the trigger on a market sell.
And sometimes it will spike HARD the right way, then flip directions, spike the other way, and then take off again in the original direction. Those times are when just watching I’ve noticed slippage would be bad. That first spike cleans out all the orders, leaving slim pickings to fill with.
Dunno, try it on demo, see how many times it gets you gains would be my thoughts.
And then try it on a live account with very small position sizes. Like a nano.
To me, successfully trading major news breaks without understanding the fundamental analysis behind it, is nothing short of gambling. And if you want to gamble, just go to the casinos. At least the drinks will be free.
To actually succeed, which is possible, I would think has the same probability of making it to the Major Leagues in American Baseball, making it to the World Series, and then cracking a grand slam home run in the bottom of the ninth to win the game.
Myself that is NOT why I avoid news trading, it’s because the reaction is often illogical and counter to what should happen. I have no problem getting in right before news and getting out. Any slippage I would get would not equate to a lot of pips really.
The thing that makes news trading risky is that you might get the exact opposite reaction as expected, and or banks might drive the price a certain way before news A LOT, so that the can profit from the real move that is coming.
So, either way you get screwed.
Try it and see if you can make it work, but there is a reason that news traders are an almost dead breed of retail trader, it’s too hard to make dependable and repeatable as a method.
If you are looking to make large gains in pips look into longer term trend trading.
I made 800 + pips this week trading four pairs twice each. Basically two days of trading.
A fine axample of this was the UK GDP figures this morning, the GBP/USD and GBP/JPY both rose before the news release then even though the news was favorable to the UK economy and appeared to show a faster than expected recovery in progress, the GBP plummetted in response.
I had to act fast to not take a loss on that news, closed out buy orders while the price was still falling, took a loss on them and threw in sell orders as fast as I could and managed to pull back the loss and get out with a few pips, before the price bottomed out.
I could have done without the stress theres easier ways to make a few pips lol
No. That’s not how you increase WR without sacrificing RRR
We often hear about which one is important between the two. It’s none
It’s average profitability per trade to average stop loss ratio
Now if you devide that money with average Stop Loss in money, it’ll be a ratio now
And that’s what matter.
If your ratio is about 1, it means you make as much as your risk. It’s equal to trading with 1:1 with 100% WR
Wow. is that possible? The 100% WR? No
But let say you trade 1:2 with 2/3 WR it’s already profitability of 1
Or 1:3 with WR 1/2
Or 1:4 with WR 2/5
Basically
[Break even WR of an RRR] * (1 + [profitability ratio]) = [required WR]
No matter Your how RRR or WR is as long as it’s more than 0 or better, you make money in the long run
About 1:5 trade with 1/2 WR, that’s possible and is not that rare. You can have that chance in forex about 1 or 2 per month from one pair only, so if you trade about 29 pairs that could about give you about 29 to 58 chance a month
But if you are still ok with less WR, then there wil be even more chance
In fact you can figure out even without looking a chart if it’s possible a certain ratio or not just looking at the annual price movement