Trade or not before high impact news?

High impact news

News are moving the market. Without them the market would range forever. How long does the news effect last and what those effect consists in? Usually, high impact news  have a bigger effect  and their effects can last for days, most of the time they determine the direction of the trend. Remember I wrote in my earlier articles about Elliot waves? The market moves more or less in waves and their length and inception are highly influenced by economic news. The first wave begins very slowly, the news are positive but there is simply not enough momentum to sustain the move. The pair begins to trend very slow, not enough to alert the technical traders. Usually the volatility is low and the volume hardly increase. At the beginning of the second wave, the price retraces a bit even if the news are positive but the volatility is still low, anyone can spot this as a small retracement. I wouldn’t advice to trade the first and second wave. The most important wave were earnings are made is wave 3. The news are positive and the volume is high, the market finally reacts to earlier news. The 4th wave is corrective, low volume,  the 5th one is the last wave but volume is much lower. Then the real retracement begins even if the news are still positive. So just trading the news without performing a technical analysis first is not something I’d advice anyone.

Times at which most countries release the news can be found in the following table:

 

Country Currency Time (EST)
U.S. USD 8:30 – 10:00
Japan JPY 18:50 – 23:30
Canada CAD 7:00 – 8:30
U.K. GBP 2:00 – 4:30
Italy EUR 3:45 – 5:00
Germany EUR 2:00 – 6:00
France EUR 2:45 – 4:00
Switzerland CHF 1:45 – 5:30
New Zealand NZD 16:45 – 21:00
Australia AUD 17:30 – 19:30

The most important market movers you should look for are:

Interest rate decision
Retail sales
Inflation (consumer price or producer price)
Unemployment
Industrial production
Business sentiment surveys
Consumer confidence surveys
Trade balance
Manufacturing sector surveys
NFP report

So, how do we trade these? Before or after? The common sense and greed tells us to attempt to grab as many pips as we can so knowing the release time, why don’t we just set pending orders and capture the pips no matter where the market is going to head? Because as I explained earlier, even if the news are positive for the currency, there are also corrective movements and we can be stopped out easily, there is not enough momentum. Besides that, the market could violently move both sides thus killing both positions which often happens because the volatility can be very high during some releases (see NFP for example).

The most successful trading method is to look for breakouts and place orders right after the news. Stop loss should be tight and Take profit should be much larger. Trading right after the news also helps in avoiding high spreads and slippage, not to mention that we can now have more chances in spotting the right direction of the trend by mixing the news outcome with technical analysis skills.

Happy trading, If you like my article please don’t be selfish and share it 🙂