For news traders, hours and minutes before news release provides opportunity for them to harvest pips, taking advantage from price movements that are usually faster than normal.
Because of its unpredictable nature, traders relying only upon the technical analysis in decision-making often avoid news releases with short-term impacts.
They consider the movements around news releases too random and out of the ongoing trend, so the swings are temporary. Traders chose to monitor currency pair movements and not open any position when the market blows.
It is different with traders who make use of fundamental analysis, or more particularly, news traders. Hours and minutes before news release provides an opportunity for them to harvest pips, because of price movements that are usually faster than normal.
So, how do they take advantage of market euphoria during a news release? Remember that to take advantage of currency pair movements on news releases; news traders may consider reading the economic calendar as the primary source in arranging trading plans.
Example of Entering the Market
For traders like me who reside in Asia, following this news sometimes needs special sacrifice because important news is usually released around midnight. To avoid or utilize the news depends on our respective preferences.
In this article, I will show you how much news impacts currency pair movement and how we can take advantage of it. Let's see the following chart:
The chart above depicted GBP/USD pair movement sometime before and after a news release from the US that was highly influential toward US Dollar.
The pair's movement tends to slow ahead of the news release, but as soon as the news was released, GBP/USD shot up from 1.5530 to 1.5644.
It's more than 100 pips in less than 45 minutes! You may be sorry to miss such a rare opportunity. Well, that depicts a new impact on currency pair price movement. Not all news has such a high impact, but we usually can take an average of 3-50 pips advantage from the movement.
To enter the market by instant execution is too risky because pair movements are unpredictable before the news release. But it will be safer if we set a trap using pending orders.
See the chart once again.
I have drawn a horizontal line around 30 pips above and below the GBP/USD price ahead of the news release. What I did was set a pending order at that time.
I set the buy stop at 1.5550 (more or less 30 pips above) and the sell stop at 1.5510 (more or less 30 pips below). That way, the trade will be automatically opened when the price touches one of them.
Cancel the other position, and let the open position continue until the target profit is attained. You can also close the trade manually afterward if you feel that the strength behind the movement has weakened.
Well, that is one of the ways you can take advantage of news releases. But please use caution. It is possible for prices to quickly move in the opposite direction after it triggers your trap and gets you a big loss instead of a profit.
In addition, you also need to note how often requotes, or widening spread, slippage happens in your broker before implementing this strategy.