I am developing my strategy and am consistently profitable on a market maker’s demo platform. Part of my strategy involves placing buy and sell stops either side of important economic data announcements, ie trading the news. I’ve been consistently profitable at trading events such as Nonfarm Payrolls using this technique, and the market maker has fixed spreads. The main problem I’ve encountered with this is requotes on exiting the trades, but is a problem I’ve learn’t to deal with.
My question is this - I plan to open and STP / ECN account when I ‘go live’ but am concerned about the effects of widening spreads and slippage when trading the news - does anyone know what kind of spread widening and slippage I can expect with a good STP / ECN broker during an event such as Nonfarm Payrolls?
When googling ‘non farm payroll spreads’, one of the top hits is a youtube video of spreads widening to 34 pips during NFP!
wait until 9:00 am, thirty minutes after the news release then trade the opposite of the initial move. That’s usually a winner and the spreads are back to normal by then.
Tbel - good luck with your strat - I tried every conceivable permutation on straddling - at first I really knew I had stumbled on the grail ( using a demo), 'how come no-one knows of this? ’ I thought, ‘just needs some tweeking, I’ll factor in the possibility of that spike next time’
Eventually reality - the mm’s know all about straddling - another little money maker for them.
My advice, for what it’s worth, learn the boring stuff - how and why it all works, who makes the money, who loses the money, why and how … where did the spike stop - why at that point, why did it reverse, could I have forseen that …were there tell tale signs that the news was known (after all the numbers have to be compiled and collated and recorded before release) … like I say quite boring.
I agree with what Peterma is saying. At news releases price will whipsaw to hit orders/ stop losses on both sides making straddling a risky business.
My thoughts are that professionals position themselves PRIOR to the news.
I drew the resistance zone around 1.3125 on Sunday last week and just prior to NFP price reached this zone. None of the H4 candles closed inside this zone, indicating there were large sell orders being filled there. Price was already falling from the zone before the NFP release…
Hey tbel,
I don’t want to say to trade this way or that way as there are many ways to skin the proverbial cat. Some people do trade news. I noticed MG has already replied as well. He does not trade news, but a consistent longer term method. I trade predominantly VSA.
I would ask you, however, to have a look at what a whipsaw is before trading news. In short, I see your strategy as say possibly the two orders with one cancelling the other, possibly with say a 20 pip S/L. Very often, within a 5 minute candle on big news events such as NFP, the candle can go quickly in both directions, both triggering your order and then whipsawing" the other direction. I did try trading like this years ago when I was doing demo and finding my niche, and looked quite good for a while, but there is always the few big ones that take you out.
Personally, I see news trading as an extremely high risk pursuit method of trading, tantamount to gambling instead of finding a method that moves probabilities into your favour. Others may see different though.
Hi TalonD, thanks very much. I have actually tried out the strategy of trading the retracement, but my experience leads me to this conclusion - It’s very hard to judge at what point the price will reverse, and how far the retracement will go. I have lost trades because I’ve thought the market has stopped moving in response to announcements, only to see price continue to move in the direction it was already going. As for judging how big the retracement will be, I have found Fibonacci levels to be quite accurate, but personally for me, I find the retracement too hard to judge. What do you think?
Thank you very much Peterma and Pippatron, that’s great advice, solid and logical I will definitely take on board what you say and understand that this type of trading is risky and difficult. Could I hear your thoughts on a little bit more of my strategy?
What I do is this - 15 minutes before the announcement I will prepare myself, and focus heavily on the market, I also like to listen to the FX squawk box channel from Ran Squawk. I look for levels of support and resistance that have formed in the pre-announcement consolidation. 5 Minutes before the announcement I place a buy stop and a sell stop 2 pips above or below this support and resistance with a minimum distance of 10 pips + spread from the current price. I usually find this is in the region of 12 - 15 pips away from current price. Then, in the 5 minute lead up to the announcement I will continually be adjusting the buy and sell stop entry prices along with their stop losses (which are set to 10 pips away) so that their prices continually remain at the same distance from current price (kind of like dynamic entry triggers?! there we go I made a name up for it!). If the price moves too aggressively towards my entry points in the lead up to the announcement, I deem this a ‘fake trigger’ and delete the pending order.
I hope that makes sense. Last week I made 37 pips on Nonfarm Payrolls, 36 pips on ECB Monetary policy statement and press conference (split between both buying and selling) and 30 pips on Bank Of England Interest Rate Decision with my technique.
Could I ask you what you think of what I’m doing? I’m sure you can see how this is attractive!
So, my initial question remains from the original post. I have achieved these results with a market makers demo account with fixed spreads. When I ‘go live’ with and STP / ECN account, will widening spreads and slippage mean my system is too dangerous and non-productive?
Hi Tassiefx, I really appreciate your input, thanks very much. I definitively empathize with what you say. Your post came through while I was responding to the others where I explain a bit more detail in my strategy, and to be honest, over the last year of demo trading I have gone between choosing to trade news, avoiding it like hell, trading the retracements, and back to trading the news again!! As you can see I am finding my feet. Could I ask you to look at the above post and let me know what you think of my system? I’ve designed it so I avoid whipsaws. I also avoid one cancels other orders. The reason for this is - If my system gets caught out by a huge whip saw, then it usually means the move in the opposite direction will be very big. In this case I am happy to take a loss when my stop loss is triggered from my initial whipsaw trade, because the opposite move will cover losses and hopefully make a profit on top of this. If I use and OCO order I’ve lost out to the whipsaw and don’t make money on the reverse move.
Could I also ask you to let me know thoughts on my final question in the above post?
A better strategy… Is to read bank reports and use other economic leading indicators to determine what the likely direction of the release will be before it is released… And enter in the direction a few minutes before the release, catching the whole initial move if you are right (which if you are doing your analysis right should be about 80% of the time). You won’t get far as a trader ignoring the news…
I have been doing this for years and quite frankly they are my most reliable trades… I only trade the big releases (GDP, central bank rate decisions, CPI, and retail sales,) … Statements and speeches by key central bank figures are the events that cause the most whipsawed and these I usually enter after they are released…
As far as slippage and spread widening… Yes it is a huge problem that’s why you enter your trade BEFORE the release… It isn’t unusual to see price gap 50 or more pips on certain releases … And if you have a stop order placed 10 pips away from price before the release… The slippage will get you into a terrible price usually (20 pip slippage is usual when big news releases gap)…
Noone can really answer that question. It all depends on how much edge you actually have. There are plenty of decent brokers and my guess is that it might not make difference as to if it is profitable or not. However, if you don’t spend time finding best deal out there then it might result in huge equity difference in long run.
I have gone between choosing to trade news, avoiding it like hell, trading the retracements, and back to trading the news again!!
There are a lot of myths in forex and one of them is to not trade news. Unless you really know what you are doing I think you shouldn’t care what the actual news (numbers) are. As i see it is: News = there might be volatility - so use it to your advantage. What matters is how market reacts.
I find that Fibonacci gives very little if any edge and retrenchment entry strategies shouldn’t be based around other aspects.
When you say that when you get stopped out by a whipsaw, the trade usually goes in the other direction, you need to also realise that a whipsaw does also occur on both ends at times. I have personally seen where the news announcement has come out and the price has dropped 20 pips for example in one direction, but then the price has continued in the opposite direction, which, in that case would take out both of the stop losses. This does occur more times than you realise. Just so long as you recognise that can and does happen.
To your last question, all brokers do increase spread at news time. I think it is to do with all the volatility leading up to the news - or to gouge a bit out of the trader during those times. The JPY pairs especially can jump right up. If a broker does not have high liquidity, this spread increase can me much higher.
I would say to open a demo account with a high liquidity, reputable broker that has real-time quoting and spreads, then test the system thoroughly. Go through many NFP days and interest rate decision days and see how it goes. Make sure you document everything so you can be assured of trading by the method and not emotion.
I would agree with the sentiment of most here but only if your trading in mt4. I’ve been bracket trading news in futures for some time now with much success. Like any trading method you will have to do a lot of research as there are futures instruments that perform well for u.s. releases and others that don’t do well. You have many choices for nfp as it affects a lot of markets. I also dont deal with broker manipulation. My slippage on nfp is between 3-6 ticks, much less than in forex. Again this varies depending on which instrument your trading but after testing and researching i’ve found a consistently profitable method to trade the news in futures and several other markets.
I’ve talked to a lot of news traders over the years and most have given up on trying to make it work. My advice to you would be to continue your research across several markets. I’m currently trading news in the futures market, stock market and recently now in the binary market with nadex. Money management is also very important. I use hard stops on every trade. My stop on non farm payroll is 5 ticks and my take profit is 20 ticks which is a great risk/reward ratio. There are also several news events that are bigger than nfp that cant be traded in forex. Like I said, continue your research and if you hit a brick wall you can ask me a question and if I can help I will.
