The point, however, is that this information should at least show the importance of having an idea what to do with a position when there is about to be a major news announcement. For me, please bear in mind, when I say major news, I mean RED news event that is listed on Forex Factory or our Forex News Section. I would take no action if an announcement with low or moderate impact was on the horizon. Also, I am only interested in announcements that pertain to the specific currency pair. In other words, a big EUR announcement would not make me alter my USD/JPY position. Why do we need to worry about news announcements when we already have a position, and we already have a stop loss and limit/profit target in place? We worry about this because a major news announcement can move the trade markets a great deal. The examples below will show how these announcements can create more risk than normal.
A few things to always remember when reading about this subject are the forex trading strategies and that –
- You can always reduce risks by adjusting your position size. It is easy to add back and adjust your cost average after the news event is over.
- A lot depends on what type of trade you are currently live with. For me my approach on news is different for Longer Term Analysis, Daily View Trades or Platinum Trading System Trades (Short term trades)
- It’s all about RISK v REWARD
- It’s all about PLANNING YOUR TRADES and TRADING YOUR PLAN
IF YOUR POSITION IS NOT IN PROFIT
We would, in most cases, leave the existing position intact. There is an exception to this rule. If the trade is 90% of the way to the stop-loss position already with the broker (e.g. -50 pip stop and within 5 fx Pips of stopping out) I would just close this trade. The reason for this is the concern that a big move against the trade could create a gap. If the gap goes past the stop then you could lose more than the risk tolerance in place, this is not good. If the trade is not near the stop losing place, just prior to the news it may be fine to leave the trade live and see what happens.
IF YOUR TRADE IS AT BREAK EVEN
With this scenario that trade would usually be left live. However, there are a couple of exceptions. First, if you think that there is a chance the news could gap beyond the stop loss, you should exit the trade. This is rare but this could apply to a very short-term trade. Secondly, another reason to exit the trade is – if the original charting pattern or Platinum Analysis no longer appears to be valid according to the forex trading strategies, if the original reason you placed the trade is gone, it makes no sense to continue. One would normally not expect this as most trades should be well thought out in advance but with a less defined strategy, it could be a situation that you find yourself in.
IF YOUR POSITION IS IN PROFIT
This is probably the most difficult of the three scenarios to manage. In the first example, the trade is more likely to be stopped regardless. The second example happens very infrequently. Example 3 is quite tricky. If the currency pair that you are trading is about 50% to the limit/target or better, personally, I would seriously think of exiting the trade. The reason is you can go from a nice profitable trade to a losing trade in an instant, or even be stopped out. However, there could also be some subjectivity in that level depending on how much you think the announcement could move the pair relative to the size of the pattern. The main objective is that you do not want to go from a profitable trade to a losing trade in a short amount of time. Psychological philosophy comes into play here, but for me, it’s all about the risk-reward. I would adjust the trade size and take profits off the table. The position size can always be added to after the news event is over if it is the right thing to do. A news event generally represents a move that is random, rapid and usually large. Therefore, I always ask myself questions such as, “If I had a 50/50 chance of the currency pair moving up 30 fx Pips or down 30 fx Pips, would I take it right now?” This is a very basic and very simple example, it is like lots of things associated with forex trading, a grey area, and it generates lots of different and conflicting views. The easiest approach just ignores the news, but I think by following the criteria and forex trading strategies listed above, forex trading results could be improved when you have a position in the trade market as a major news announcement it about to be released. Always remember the above trading scenarios and forex trading strategies to be a trader who can look perspectively and logically at any trade no matter how bad or good the fx market is behaving!
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Perfect Fundamentals + Perfect Technical Analysis + Perfect Logic + Perfect Risk Management = Perfect Trade
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Hopefully, you have enjoyed today’s article. Thanks for reading! Have a fantastic day!
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Nisha Patel is a Forex Trader and Content Writer at the Platinum Trading Academy, she has been trading in the markets for over 15 years and covers three major aspects: Forex, Indices, and Fundamental Analysis.
"I understand the pain of day traders; by writing dynamic and exciting content which my readers can enjoy, I hope to enhance your trading skills and bring both profitability and consistency"
Having worked for three major corporate banks such as ICAP, Credit Suisse and JP Morgan, Nisha finally found a home with the Platinum Trading Academy.
Working together, we hope to bring you amazing content while trading the financial markets.