Bonnie Cassidy - Bonnie's career began over 16 years ago at UBS Asset Management in the Compliance Department.  She then moved to Dresdner Kleinwort Wasserstein where she was trading Equities electronically.  Her career then took her to Cazenove and then on to Barclays Capital where she moved in to the world of FX and eFX sales specifically before moving to a similar role at Nomura.  Having worked with Mahi's co-founders previously, she joined MahiFX in January 2012
Bonnie Cassidy
Bonnie's career began over 16 years ago at UBS Asset Management in the Compliance Department. She then moved to Dresdner Kleinwort Wasserstein where she was trading Equities electronically. Her career then took her to Cazenove and then on to Barclays Capital where she moved in to the world of FX and eFX sales specifically before moving to a similar role at Nomura. Having worked with Mahi's co-founders previously, she joined MahiFX in January 2012
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The 3 Step News Trading Forex Strategy

News events with economic impact can have a drastic affect on the value of currencies. Traders that use long-term positions are well advised to not open any trades prior to a news announcement or cover their positions going into it. The volatility can go either direction depending on how participants are viewing the impact of that piece of news. On the other hand, volatility also creates the circumstances necessary to reach for profit. The following strategy is a simple approach that can help a trader embrace the knee-jerk reaction of the market to add some more money to their trading balance.

First we'll take a look at the steps then dive into the specifics and logic. Though there are only three steps, there is a number of considerations behind them.

1. Set charts to 5 Minute increments.
2. Buy/Sell the pair with the dominant direction AFTER one 5 Minute candle has closed.
3. Close the trade when the candlesticks start showing weakness.


*A Closer Look…

1. Set charts to 5 Minute increments.

News event volatility often comes in a surge. It can be the catalyst for shifts in an overall trend but that isn't really our concern at the moment. This strategy is looking to capitalize and ride that surge like a surfer would. 1 Minute increments are a bit too choppy but 5 Minute candlesticks give the right amount of insight for the limited time we will be in this trade.
 

2. Buy/Sell the pair with the dominant direction AFTER one 5 Minute candle has closed.

A candlestick is not considered valid until after it is closed and we want to ensure we're stepping into the right circumstances for profitability. If price moves in one direction and rebounds before the close; we're staring at a large wick that we shouldn't be trading. On the other hand, if it moves in a direction and closes near the end of the candlestick, it's not a stretch that the price will continue in the next candlestick or two.

This is a high risk strategy so always use a Stop Loss. The appropriate Stop will really depend on the size of the movement. The ideal place would be behind the candlestick we are using to gauge direction and stretch. If it is a sizable stick, you can place it about halfway up that stick or behind some other logical point. (A good rule of thumb is no more than 40 pips if you want a good Risk:Reward.)
 

3. Close the trade when the candlesticks start showing weakness.

An aggressive stance on protecting the profit you lock in is necessary with this strategy. You're immersing yourself in very volatile waters and you don't want to get caught when the whip pulls back. It is very likely that will not be in the trade for longer than 10-20 minutes; sometimes for as long as an hour for an event like Non-Farm Payrolls. If momentum slows or a reversal signal prints; it's time to exit.  

 

Additional Considerations...

  • This is not a novice level trading activity. If you are not experienced in forex trading and chart reading; test it thoroughly to ensure you can make the interpretations required. An open trade in volatile conditions is not the time to discover you don't quite understand candlestick charts.
     
  • Do not enter unless the "test" candlestick closes in the furthest 25% of the candlestick. That is a very strong indicator that price wants to continue in that direction.
     
  • About any High Volatility event can be traded with this strategy but the ones that are best include the USD/EUR during Non-Farm Payrolls, any associated Major or Cross during a relevant Central Bank Rate Decision, and relevant pairs during an official's speech.
     
  • One should avoid trading pairs that are not Majors and Crosses. Exotics simply don't have enough participants to print a somewhat reliable candlestick. A strong, dominant candlestick on the EURUSD has many more participants than one printed on the USDHKD.


This post was written by Bonnie Cassidy, Business Manager at MahiFX.com.

You can follow her on Google + and read more from Bonnie here.

 

MahiFX now offer MT4. Download our MT4 software here and set up a demo account today.

 

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