Trader Tip: Trading Central Bank News With the recent talk of trade wars and their subsequent currency wars, central bank policy and their potential changes, is causing central bank announcements to be even more important than before. These central bank announcements can make some interesting trading opportunities, and as well can be a horror trading story if it goes all wrong. Yes I know, it can be very tempting to make a big win, but caution is the word. So in this article let’s talk about some ideas we can use to take the potential horrors out of these trade set up and even potential turning it into a more consistent winning strategy.
First off it should be said, that one should be careful when trading any major news announcements – often the best approach is to avoid trading these types of situations. In addition, often when trading the exact moment of these news events, spreads widen, algos can go haywire and price will gyrate wildly before any real trade set up occurs. That being said, and if you must, here a few pointers when trading central bank news events. You can follow the narrative below while viewing the attached graphic.
- Absolutely do not trade the first minute after the news announcement, it is pure casino trading.
- Avoid counter-trend trading on any time frame. Instead look for the trend to trade. Often there will be little pullback to get in, so you will need to be brave.
- Notwithstanding the fundamental aspects of the news announcement, view the 50MA on the 1hr (for the past 24hrs) to see the real price action the market thinks the trade will go after the news event. If the market direction after the news even agrees with this indicator, the move will be softer – the contrary will be much stronger
- It is quite normal, that just prior to the news announcement, the market will be wedging or price boxing. Use these levels as potential Triggers for entry points in a trend trade and / or breakout strategy.
- On the initial news announcement, it is quite normal that price may fake initially in the wrong direction before the actual moves occurs, unless it was a wildly favorable news event for a one-sided trade. This may be judged as well if the actual report exceeds wildly the expectation.
- The better play is to wait at least one to two hours after the news announcement for any continuation trade set-ups. If price is outside the initial wedge / price box, price then is pointing in the direction of the continuation move.
- If after a big move, toward the end of the day, there tends to be at least a small recovery. Don’t be fooled by this, as often central bank moves, that have initially been big price movers, will have follow through for one to two more days.
There are many potential Trade Plans that could be developed using these pointers, but I will let you work through these. So I hope this Blog post will help you if and/or when you trade central bank news, to become that more successful proprietary trader. Click here, or watch below a video presentation of this Trader Tip.
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