Reminder, i’m a noobie so take it easy on me.
My thinking, the market has a high probability of swinging one way or the other after the report. There’s a probabilty that the market doesn’t react, but considering the hype up to the report, I dont think that’s likely.
I’ll describe my hypothetical trade, let’s see if you agree.
Account balance: $1,000.
Enter a position leaving only $250 in usable margin. If your position goes against you will automatically receive a margin call at this level, limiting your loss.
However, if the position goes in your favor, your looking at good amount of pips.
Let’s say to buy 1 lot your broker requires 1500, so you buy half a lot with 750, which would give you roughly $7.50/pip.
It would take approximately 33 pips to stop you out. Considering the perceived volatility the pairs could move in upwards of 100 pips.
Potential profit 100 pips X 7.5 = $750
Potential loss = $250
Net expected value $500
This trade gives us a 3 : 1 , reward to risk ratio.
My facts may be construed due to a lack of knowledge on my part, if so I apologize. Based on my limited expertise I think this is a good trade.
Do you agree?
ok. You’re kinda wrong a bunch of things. I’ll try to do the best I can (with my limited knowledge) to straighten you out.
First, if you buy half a standard lot, that would mean you’re buying 50,000 units, which would mean you’re pip value would be $5.00 not ten since a full lot is $10 a pip, half would be $5.
I won’t comment too much on the math, but I do think it’s wrong.
The only thing I want to say is that on a normal news release day for the NFP, there can be lots of fluctuation in price before a direction is picked. I’ve seen price move up 50 pips before dropping 100. However, since there’s lots of bank holidays there will be far less liquidity tomorrow and thus WAY more erratic price movement…who knows how much it’ll move before picking a direction tomorrow.
I like your idea but I think you’re not leaving enough room for the trade to breath…plus after learning to trade as long as I have I’ve come to the conclusion that trying to trade news, although profitable, is very hard and in the end will end up costing you way more money then you’ll actually make.
Trading the news in general and NFP specifically can be very dangerous.
Not because you can be wrong…you don’t need news for that, but because of market and execution threats.
I have personally seen a spread of 297 pips on the EURAUD during Feb NFP. think for a minute what that means. You would be instantly filled and stopped out, without so much as a chance. You would look at the chart and see how the bid price on your short decended through your take profit, but you would not understand why you got stopped out.
What you are not seeing on the chart is where the Ask price was during these critical seconds. Remember, your short is valued at the Ask price, not the Bid price which is what you see on the chart.
There is a reason why there is no liquidity during NFP(or other big news). The real big players(hedge funds and banks) and the savvy traders are sitting on the sidelines until it is safe. Only the small retails guys are sitting there fat dumb and happy with the pending orders providing liquidity to the sharks.
I think of it as a guy camping on the beach thinking his tent will protect him from the rain…but there is a tsunami headed his way.