by Ellie Taft
Strategy #1: Jump the Gun
“Jump the Gun” is a very simple concept based on fundamentals. But, for successful execution you must be out of the box before everyone else!
Here’s how it works…
First, set yourself up with an up-to-the-second news feed that gets the numbers to you before they’re announced on Bloomberg and Reuters. Premium news feeds can cost as much as $2,000 a month. But I know of a couple under $100 that should suffice.
Then, pick a high-impact report from the economic calendar and note the forecasted number. Consider how a deviation from the forecast would impact the homeland currency. And formulate your strategy.
For example, on February 8th the Canadian Labor Change report was due out at 7:00am ET. Forecast: 10,000 jobs.
If substantially more than 10,000 new jobs have been created, that would be good for the Canadian Dollar… meaning USD/CAD and EUR/CAD should spike down. A number considerably lower than 10,000 would cause a spike up.
Ready yourself as the time of release nears. Set up your trade orders “at the market” so the moment you hear the news you can just hit “send”.
If the announcement is below expectations, hit the buy button. If the announcement is above expectations, hit the sell. It is imperative that you act without the least bit of hesitation. You are striving to get in AHEAD of everyone else… BEFORE the spike and BEFORE the spreads increase.
Exit your trade as soon as momentum falters.
Obviously, having the right broker is critical to this news-trading strategy. If you are unable to get in and out of the market quickly, you are wasting your time.
In our Canadian Labor example, as it turned out, the Canadian government announced a whopping 46,000 new jobs for the month of January — four and a half times the forecast!
If you didn’t pull the trigger before those numbers hit the street, you were flat out of luck.
A 63-pip price gap… Wow!
And, as you’ll see below, the profit potential for EUR/CAD was even greater – which is why it’s a good idea to run two pairs.
This sharp drop had to do with interest rates… it always does in the currency market.
Canada’s employment was up and wages were rising. So the Bank of Canada would not risk fueling their economy further by dropping rates.
I’m telling you this simply as a matter of interest. As a trader, all that really matters is that a full size contract could have potentially earned you a whopping $1,720 in just 3 minutes!
Strategy #2: The Rebounder
When the news hits the street, the market takes off like a rocket and the spreads get very wide. Then, after a few minutes, the news gets old, momentum decreases, and the spreads begin to narrow.
If you didn’t “Jump the Gun”, and get in ahead of the rush, wait for the rebound.
“The Rebounder” enters the market on the correction, after the spreads and slippage have subsided a bit.
If the initial move is up, place a “Sell Stop” just below the most recent 1-minute bar. If the move is down, place a “Buy Stop” just above the most recent 1-minute bar. Each minute, move the entry stop.
Once your order is filled, trail a stop behind each 1- minute bar for TWICE as many contracts as your initial order.
In this way, you will stop and reverse!
You can exit the second trade one of two ways… 1) take profits at the high (low) of the initial spike. 2) trail a stop just below (above) each previous 1-minute bar.
Let’s take a look at “The Rebounder” in action.
On February 4th, at 10:30pm ET, the Reserve Bank of Australia announced its decision to raise interest rates 25 points, which is exactly what the experts predicted. So, in this case, there’s no telling what the market will do and there would have been no “Jump The Gun” trade.
Australia’s interest rates were already among the highest of our eight currencies, second only to New Zealand at 8.25%. An additional increase sends a clear signal to the world that the Aussie economy is growing ever stronger despite America’s financial woes.
Ahead of the announcement, the Australian Dollar amassed solid gains against the US Dollar, as speculators built their positions. And, it was widely expected that the AUD/USD exchange rate would continue to rise.
So, what happens when a rate-hike, announced when only the Asian markets are open, comes in exactly as expected? Let’s see.
For this Australian news event we’ll look to trade the AUD/USD and EUR/AUD pairs.
Please note, a stronger Australian Dollar translates to an up move for AUD/USD, where AUD comes first and is the “Base” currency.
And a down move for EUR/AUD, where AUD comes second and the Euro is the “Base” currency.
The RBA made their statement at 10:30 sharp and the market immediately spiked into strong AUD territory.
Then, the very next minute profit-takers, who had been building their positions for days ahead of the report, swarmed in.
A sharp spike in the opposite direction gave “The Rebounder” a chance to get into the market… going short AUD/USD and long EUR/AUD.
Five minutes later, AUD bulls regained control. The AUD/USD went long. The EUR/AUD went short. And by 11:20pm ET, “The Rebounder” could have potentially claimed a total $1,493 in profits… Sweet dreams!
Strategy #3: Good Old Slow Hand
If you have very focused attention, quick reflexes, and an excellent broker, you’ll probably do quite well with “Jump the Gun” and “The Rebounder”. By the way, how are you at video games?
Personally, I’m not a gamer. And “Good Old Slow Hand”, which uses 15-minute charts, rather than 1-minute, is more my style. Here are the rules…
- Slop = the trading range for the candle immediately before the announcement, (High point – low point). Slop must be < 20 or 1/3 the size of Spike.
- Spike = the trading range for the announcement candle (Highest price – lowest price). Spike must be > 40 or 3 times as big as Slop. Otherwise, not trade.
- Place a solid line at the Highest point of the Spike candle and at the Lowest point of the Spike candle.
- Place a dashed line at (Upper Solid line + Slop) and place a dashed line at (Lower Solid line – Slop).
- For a Long Breakout trade, place a Buy-Stop order for the amount at the Upper Dashed line.
- Put a stop-loss at (Upper Dashed – Spike)
- Take Profits at (Upper Dashed + Spike)
- Short Reversal trade if price closes above the Upper Solid line, and then price closes below the Upper Solid line. Sell at the open of the next bar.
- Put a stop-loss at (Upper Dashed + Slop)
- Take profits at Lower Solid line
- For a Short Breakout trade, place a Sell-Stop order for the amount at the Lower Dashed Line.
- Put a stop-loss at (Lower Dashed + Spike)
- Take Profits at (Lower Dashed – Spike)
- Long Reversal trade if price closes below the Lower Solid line, and then price closes above the Lower Solid line. Buy at the open of the next bar.
- Put a stop-loss at (Lower Dashed – Slop)
- Take profits at Upper Solid line
- At 11:00am ET, move Stop Loss to Breakeven if in positive territory. Move Target to Breakeven if in negative territory. If still open at 4:30, exit.
The chart below shows the same announcement from the Reserve Bank of Australia that we saw earlier.
Where “The Rebounder” was done before 11:30pm ET, “Good Old Slow Hand” didn’t even get interested until hours later. Just think, you could have run both these strategies back to back and really gone for the gold!