The Forex News Trading System
Step 1: Go to
ForexNews.com and scroll down to the bottom of the page to find out what Forex News releases are coming out.
Then, click on
Complete Calendar for Current Week link.
Step 2: Now, look at the Calendar for News releases that affect the Forex market. The ones particularly to look for are the following news announcements:
- Unemployment Reports (Non-Farm Payroll)
- Interest Rates
- Consumer Price Index (CPI)
- Inflation Reports
- Gross Domestic Product (GDP)
- M2 (Money Supply)
- Treasury Budget
- Producer Price Index (PPI)
- Retail Sales
- International Trade
Unemployment Reports are released on the first Friday of every month at 8:30 am EST for the prior month (this is a big one you should always attempt to trade!), and every Thursday at 8:30 am EST they release a weekly adjustment (less important but still a good possibility). CPIs are released 8:30 am EST around the 13th of each month for the prior month. International Trade is released 8:30 am EST around the 20th of the month (data is for two months prior). PPI released around 11th of each month at 8:30 am EST for the prior month. Treasury Budget released 14:00 EST around the 3rd week of the month for the prior month. GDP released 3rd or 4th week of the month at 8:30 am EST for the prior quarter, with subsequent revisions released in the 2nd and 3rd months of the quarter. M2 released Thursdays at 16:30 EST data for the week ended two Mondays prior. NAPM (National Association of Purchasing Managers) released 10:00 am EST on the first business day of the month for the prior month. Retail Sales released 8:30 am EST around the 13th of the month for one- month prior.
Step 3: Only Trade the following currency pairs as they appear at this time to move more than the others: EUR/USD, GBP/USD, USD/CHF. Do not attempt with real money (just demo) to trade other currency types with this strategy. Notice the above information. I removed all nations that this system does not work with.
Now that you know at what time you need to be at your computer ready to make the trade, we need to get ready 5-10 minutes before the announcement to trade.
Step 4: Watch how I setup my chart for a news release. In VT Trader platform. Make sure you are setup to the 1 minute chart on the currency pair you are planning to trade.
Step 5: As you can see above, the current price is 1.7831.
Step 6: Right Click on the chart about 10-15 pips above the current price and click EntryStop Buy. You are requesting to buy when the currency hits your price.
Step 7: Enter the amount of contracts you want to trade (in this example it is 1) and enter a Stoploss for 10 pips. Press OK.
Step 8: Click OK again to confirm.
Step 9: Now, do the same thing below the current price, except add in a EntryStop Sell 10-15 pips below the current price.
Step 10: Enter the amount of contracts you want to trade (in this example it is 1) and enter a Stoploss for 10 pips. Press OK
Step 11: What did you just do? You took the price range of the currency pair and stretched it 10 pips up and down to add a little bit of a safety net. You told the broker that if the price of the currency pair goes up to that high point then you will “BUY”, and if it goes down to the low point then you will “SELL”. You also told the broker to stop you out after losing ten pips incase of whiplash if that should happen.
If the price happened to go “UP”, and you would have ended up “BUYING” the currency pair. It could just as well gone “DOWN”, and you would have ended up “SELLING” the currency pair. It doesn’t really matter with this strategy which way it goes, just that it moves a lot of pips.
You could also, set the optional profit limit to 20 pips. So basically, you don’t have to know if the news is going to be good or bad. All you do is wait until one or the other is executed on news. Once one or the other is executed, you simply cancel the other order and then wait and take a profit when you think is best (20-30 pips is usually about average). However, don’t wait to long because the price could drop very quickly after the initial run.
MORE ABOUT THE STRATEGY
Why use a 10 pip stop loss? If you are wondering at all about that question then you must be a beginner at trading Forex. Any Forex trader knows to NEVER trade without protective stop losses. If you trade without stops then your first mistake will be your last because you might not have any funds left in your account. A stop is there to protect you from losses, but it is also there to help you make money.
If you trade to gain 20 pips while risking only 10 that means you are trading with a 2:1 risk ratio. It’s like you and I are playing a game where I flip a regular coin many times, and our bet is that if it lands on heads I’ll give you $20, but if it lands on tails you give me $10. You would be foolish not to join me in this bet, as you should come out ahead (though with the Amazing Forex System your odds are better than a 50/50 coin toss).
Another reason to use a stop is that it could go wrong. It does happen sometimes and you need to be prepared. The price could go one way just far enough to trigger your order then turn around and skyrocket the other way (whiplash). How would you feel losing 30 or more pips in just a couple of minutes? Not fun. It does happen that you get triggered the wrong way. Oh well, you lost 10 pips, usually you make it back when it triggers the other entry order and keeps going that way, or you can make it up in the next trading opportunity. Losses are a part a trader’s life; the trick is to limit your losses and let your gains run, not the other way around.
One amazing thing about this strategy is that you are only risking 10 pips in your trade. Most traders usually have stops of 20 to 100 pips, and so would consider a 10 pip stop a very safe trade.
On another note, in the above trading strategy I was assuming that your Forex broker is giving you a 3-5 pip spread. This is because you could get triggered into the trade too soon, and possibly for the wrong direction if the high/low of the 8:30am candle were to go 3 or 4 pips higher/lower than the previous.
WHIPLASH
Take a look at the above chart This is the one-minute candlestick charts of the GBP/USD on June 15, 2004. Here you will notice that at announcement time it dipped down strongly (for about 20 seconds) before turning around the other way. Sometimes the markets react in a “whiplash” fashion for a moment because individual investors seeing the news react unpredictably. This happens sometimes, and unfortunately it triggers one entry order and promptly results in a 10 pip loss (remember NEVER trade without stops – and sometimes when a large whiplash happens you can even profit from it if you had set your limits). Then it triggers the other entry order and keeps on going (usually). At this point you wait for your profits to be in excess of 20 pips and
you immediately change your stop order to secure a 10 pip profit which counters the 10 pip loss. If anything bad should happen at this point you would exit the trade with a zero win/loss, which is better than walking away with a 20 pip loss.
DUDS
What’s a “dud”? It is those times when nothing seems to happen. Sometimes you don’t see the explosive price changes you hoped to see. Realistically, most of your attempts will result in a dud, but the winning times more than pay for your wasted time.
Maybe you picked a wrong time, or the News releases were not really of any importance. Anyhow you should know if the trading session is a dud if nothing significant happens within three minutes of the anticipated Announcement. This is part of the reason why you increase the highs/lows by 10 pips, so you can usually get out before you get into a trade. At this point close any pending entry orders. If one of your entry orders have been triggered then “oh well”, it’s like a coin toss – it may or may not go in your favor – just set the limit for 20 pips and see what happens. You could end up with a 10 pip loss or a 20 pip gain. As soon as you are in profit of 6 or more pips then immediately replace your stop at the entry price, this way if it goes back down the trade results in a zero loss (or you could exit the trade manually to take the small profit – your choice). Cross your fingers and hope it results in a profit, but at least you shouldn’t loose. If you are going to experience losses with this system then this is where it will happen (unless you foolishly forget to strategically trail your stops on winning trades as explained).
Plan now for the next trading opportunity. Please remember that not every time will you experience those price explosions, but they do typically happen several times a week, and when you catch some of them you’ll profit handsomely.
ADDING MORE “SAFETY”
What I often do, and recommend you consider as well is to pad your pip ranges a little more. Often what I’ll do is I add/subtract 15 pips rather than just 10, or I will add 10 pips to the highs/lows over the past 8 minutes, especially when there has been some larger price movements. Widening your range lowers your risk of having your trade entry triggered if it ends up being a dud. Yes, doing this will cut a bit out of potential profits (usually an extra 5 to 10 pips), but it dramatically lowers your potential for losses. Remember, it’s better to make a little less on your profits as it will be far compensated for the savings of losses.
THE “BIGGER CHANCE” APPROACH
After having some experience with 20 pip limits and feel quite comfortable doing this then try a 30 pip limit or even 35. Remember, the farther your limits the greater the risk that it might not work out, however 30 pips is still relatively safe.
THE “GONE SURFING” APPROACH
If you have some time available in front of your computer then don’t use a limit, go for even more pips. As soon as your trade has been activated and moves up at least 10 pips then immediately replace your stop to be at your entry price, and cancel the other pending entry order. After this the worst case scenario would be a zero gain/loss. After the price has gone 30 pips above your opening price then replace your stop up 20 pips. After this the worst case scenario would be that you gained 20 pips, you can’t loose! All this should have already happened within 15 minutes after the Fundamental Announcement time. You now have two choices:
Choice 1 – Baby Sitting - Continue trailing your stops following your profits by 15 pips (or 10 pips before the pull-backs – this is the better way) and see how far it goes before you get stopped out. You could easily get 35 to 100 pips this way in one good trading session. Be sure to get out before end of market overlap closing time (what is “market overlap”? See below).
Choice 2 – Sailing On - If you are somewhat more of an experienced trader and see that the price is moving in the direction of the trend (according to any of your technical assessments – i.e. acting as an extension of a large Fibonacci swing) then you may want to simply leave your stop for a 20 pip gain (so in the worst case scenario you at least made 20 pips) and let it ride for a couple of days (or limit where you forecast a reversal – i.e. near the end of a Fibonacci extension or close to a trend line bounce level). You could gain 100, 200, 300 or possibly more pips. Use protective stops to secure your profit at lows/highs (trailing stops).
Market Overlap
Because the world is round, different places around the world experience different times. Half way around the world from somewhere where it is daytime is nighttime. This is obvious. Now there are three major markets that trade Forex, the North American market, the European market, and the Asian market (including Australia & New Zealand). The Asian market trades between 8pm and 4am EST (convert these times to your own time zone), the European market trades between 2am and 12pm EST, and the North American Market from 8am to 5pm EST. You will notice that there are two times when two of the major markets overlap in trading times; between 2am and 4am EST (Asian/European) and between 8am to 12pm EST (European/N. American). Generally speaking, those are the best times to trade, and all other times simply close your computer. Most significant price moves happen only during these times, and outside of these times the markets mostly “consolidate”, meaning very little price action happens, just some narrow bouncing sideways movement, and it’s usually a big waste of time trading then.
CLOSE ALL ON FRIDAYS – DANGER! DANGER! This point is huge. Never, and I mean NEVER leave a trade open through the weekend. During the weekend the markets are closed, but world events still happen that affect the price of a currency pair. When the markets reopen on Monday morning (Asian times), Sunday evening in North America, the price usually gaps meaning your stops could be completely missed resulting in huge losses. So never ever ever leave a trade open through a weekend. If you have any open trades simply close them manually around noon or 1pm (EST) on Friday. Yes, following this advice may result in lost profit opportunities, but it far more than compensates for lost money in your account if you are on the wrong side of a big move.
FINAL COMMENTS
I thought I should include the comment that I realize that this strategy goes contrary to what professional traders recommend. The usual practice is to avoid trading just before Fundamental Announcements as they throw off technical analysis temporarily and you are encouraged to avoid such volatility, and practice good technical trading. I would normally agree with that sound advice, however this strategy is designed to capitalize on that volatility. It doesn’t matter which way it goes, up or down, with or against technical analysis, for you to profit from it. If it moves against what the technicals are saying then it often corrects itself shortly,
long enough after you’ve made a profit. Remember, do your technical analysis and if the price jump agrees with your analysis then that could be an excellent way to enter the market with less risk than entering in another way with a 60 pip stop. In other words if it goes against the trend/expectations then take your profits and run, but if it goes with the expected direction then move your stop to prevent any loss, and even to secure some profit then let it ride.
I often look back and use the highest highs & lowest lows from earlier candles (3 and 4 minutes before announcement time–sometimes even a few more) if they seem to be jumping wildly. Sometimes if I feel a bit uncertain I might even pad my spread by 15 pips rather than 10 (keeping 10 pips as stop though). This usually leads to less whiplash and lowers the risk of getting entered into a trade if it results in a dud. Remember, it is a dud if by 3 minutes after announcement time if prices haven’t jumped and immediately cancel your orders.
You could work this system for virtually every Forex News Announcement, however you would be wasting your time for the most part. The highest likelihood of getting the jump you are looking for is when there are multiple (two or more) announcements from the same country at the same time, however a jump can occur even from a single announcement (and if the news seems like an important one, then you may want to try it). Also notice when there are announcements happening at the same time from two different countries (i.e. US and Canada) then trade their currencies (i.e. USD/CAD). Bottom line is that there aren’t any scientific strict rules to follow, it is more subjective, and a bit of luck helps too. Pick what appears to be the five or six best opportunities from the announcements calendar for the week and just focus on those. Don’t waste your time trading every announcement. Some weeks will be better than others. Remember, with a little practice you’ll get a feel for what to look for.
Spend a little time researching on the web about important Forex News to understand what they are, and to gain a better sense of what kinds of news should have a higher likelihood of causing the sought after price explosions. Remember, successful traders will do what unsuccessful traders won’t do. So gain an edge by educating yourself a little about this subject.
I have found that 8:30am EST so regularly has price explosions that I’ve set it a standard trading time to attempt every trading day that has some sort of announcement at that time (as this is the time that the US usually releases important announcements, and because it is so close to the beginning of the European /N.American market overlap). It consistently creates price explosions to trade using this system, I’d say a guesstimate average of 2 or 3 times a week. If you were to do nothing more than trade this time each weekday, working only one hour per week (actually only 50 minutes if you spent only 10 minutes a day doing this), then this alone could result in full time income for you (depending on how many lots you trade and how many pips you actually get – i.e. if you got 60 pips from 3 trades with a limit of 20 pips trading two lots would be $1200, but if you successfully baby sit your trade for a while it could be even more! If you have a larger margin account then you could trade to earn even more, just multiply the numbers by how many lots you can safely afford. The best currency pairs are EUR/USD & GBP/USD, and a secondary choice would be USD/CAD & USD/CHF (if there is a specific reason such as a CAD announcement at same time, but generally stick with EUR or GBP).
