Trading the news in a simple way. Part 2.

Posted on Posted in Journal

Hi there!

In today’s article I will continue talking about trading around the major news announcements. As you remember from the previous article, reading market sentiment is more important for a short-term trader rather than trying to analyze long-term fundamentals.

Now, as I’m writing this article, it’s 2 hours left before the ECB interest rate decision. What about the current price action? We see that it grows…

 

 

 

 

How do you think – why a price of a currency pair (an asset) grows in a face of uncertainty?

There may be a very simple reason: it goes “North” due to expectations of a more hawkish monetary policy than expected. In fact, it doesn’t matter what would really happen, but expectations is what really matters since they create speculations.

I bet that when the real decision is released to the public, the price will sharply go down (at least, for a current day). That’s an implementation of an old adage “buy the rumours, sell the news”.

 

 

How to trade this situation?

The prediction (or better said, anticipation) of a certain event doesn’t automatically opens an opportunity for a good trade. The former requires to provide a decent entry point and a short (and reasonable) stop-loss.

 

 

 

 

As a variation of a good entry may be the situation if (when) the price breaks previous days extreme before the news announcement like it is shown on the picture.

That’s just an example, not a trading suggestion. In your trading, you should develop a set of your own “signature” setups which work for you and which you understand well.

 

Good luck and have a good day ahead!

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