Monday, August 22, 2016

3 Strategies for Trading News (NFP)

Trading news is dangerous as wild and erratic price movements can extend against the trader
Traders need to be vigilant with risk management, looking to capitalize when on the right side of the move
We share three different types of strategies for trading during news
The big day is here, and the Non-Farm Payrolls report that much of the world has been waiting for will finally be unveiled tomorrow morning at 8:30AM in New York.

News announcements of this nature can take on a life of their own with the amount of interest they receive. But it’s important to note the danger and risks of trading on such events. Nobody in the world has any idea the way that NFP will print… and even if they did, there is no way of knowing exactly the way that the market will price that data.

What follows are three ways that traders can look to trade around high-importance news announcements like NFP.

But, before we get into the strategies, I’d like to stress the danger of trading in such environments. Many professionals choose to avoid trading during high-impact news announcements just because of how dangerous or erratic they can be.

If you’ve never traded during one of these events, or if you don’t feel comfortable taking on the extraneous risk that is inevitable with such a high-impact announcement, trade on the demo account or sit on the sidelines. There is absolutely no shame in having fear of a market; this is what helps keep traders alive. Bravado or machismo is absolutely worthless if you drain all of your equity. You can get a demo account completely free-of-charge at this LINK.

The ‘Slingshot’ Strategy

This strategy looks to capitalize on the mayhem that may ensue during an especially strong print. In this strategy, the trader wants to look to go into NFP with their full position(s), so that if the volatility created around the announcement may be able to push their trade deeply into profitable territory, they can look to take advantage of that.

The slingshot looks to scale out of winning positions as the trade moves in the trader’s favor, and a variety of entries or entry strategies can be used to trigger the initial position.

Support and resistance identification is a necessity before opening any positions. Traders can also take this a step further by looking to the hourly or four-hour charts to determine any trends that may exist leading into the announcement. This way, if the biases going into NFP take place after the data is released, the trader can be on the right side of the move.

Support and Resistance is so important because that’s the ‘cut point’ with which the trader can close off the position if prices are going to move too far against them. Stops for long positions can go below support, and stops for short positions can go above resistance so that if either of these levels are broken, the loss can minimized.