In this Wiki, we will explore Trading Surprise Data and News and how you can apply this concept to your own trading should some surprise data or news occur.
This Wiki is part of our Fundamental and Sentiment Trading Strategies Wiki. Be sure to check that out HERE.
Trading Surprise Data and News
Another strategy that you can use is one that has a high probability of success and is also simple. The caveat is that it can only be used when there is an extreme deviation or surprise that the markets absolutely did not see coming.
The easiest way to see whether or not this has occurred is to research each risk event and find out what the market is Expecting so that if the opposite happens you know that it will cause a large sustained reaction. The key word here is sustained because lots of minor deviations cause reactions but these are typically quickly retraced and within a few hours things are all back to normal as if nothing happened at all with the exception of a spike on the charts. Lots of new and retail traders get sucked into those moves and end up buying the top or selling the bottom only to watch the market move against them and stop them out.
An example of a time that we can apply this trade is when a central bank announces a rate adjustment when the market was expecting no change. In these circumstances, it’s hard to see a trade ever losing but these instances are also rare. However, you must act quickly because you can't sit and watch the move take off or else you will miss a good portion of the price extention.
Another example is if something really unexpected happens completely out of the blue. For example, if a central bank member was giving a speech and then said something totally unexpected and out of character this would also get the market moving in a sustained manner. This is because if a central bank member deviates way out of line then there must be something happening in the background that we have not been made aware of yet and this deviation is the first indication of new things to come.
This trade setup should not be used on small data points that have a deviation from the expected figure because it is better to trade those on pullbacks.
We also need the sentiment at the time in the right order to get any kind of tradeable move such as positive sentiment that is suddenly and instantly changed to negative from whatever the news was. As long as the event was extremely unexpected and had a direct impact on the expectations of the market for the central bank's monetary policy then you are probably good to consider this type of trade setup.
There are a few methods for taking advantage of this. One simple technical setup is entering the market right before or at the close of the first 5 minute candle after this surprise event has taken place. Stops can be placed either at the halfway point of the candle or just above or below the 5 minute candle away from your entry. This will be something that you perfect over time with practice with this type of trade.
You can also test out if using a 1 minute, 3 minute or any other timeframe has better odds of success with your entry and stop loss placement. With anything you need to test out what works best for you. We are simply offering general ideas here.
Targets should be based on normal things such as old highs or lows and the average daily range of the pair. You can also hold for longer if there is a strong fundamental reason supporting the move and the market has a clear expectation of where the price of the pair could get to in the long run. The main point is that you should be getting in within at least 5 minutes of the initial event to ensure that you make some pips from it. This requires you to watch and listen to the news feeds intensely but when you get a few trades like this each month it will be worth it.
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