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| =='''How to Trade Risk Events'''== | | =='''[[How to Trade Risk Events]]'''== |
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| [[Trader_Types#Day_Traders | Day trading]] is a very good way to find consistent trades that have a high probability and that require smaller stop losses. However, the downside is that you have to be at your [[trading]] desk most of the day to find them. This can get very tiring very quickly. | | Trading Risk Events can be a very profitable form of [[trading]] but you need to know how to do it correctly. In the following Wiki, we are going to explore [[How to Trade Risk Events]] including: |
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| There are other day trading strategies that you can use to find better opportunities days and sometimes weeks in advance. This is the concept of [[trading]] [[Economic_data_releases | risk events]].
| | * [[How_to_Trade_Risk_Events#Trading_into_a_Risk_Event | Trading into a Risk Event]] |
| | * [[How_to_Trade_Risk_Events#Trading_out_of_a_Risk_Event | Trading out of a Risk Event]] |
| | * [[How_to_Trade_Risk_Events#How_to_Trade_Upcoming_Risk_Events | How to Trade Upcoming Risk Events]] |
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| A [[Economic_data_releases | risk event]] is basically any [[Economic_data_releases | economic release]] or announcement that is scheduled on the [[Economic_calendar | economic calendar]] that has the potential to be a high impact event. Not all [[Economic_data_releases | risk events]] are created equal and some do not move the market even 1 pip while others have the entire [[trading]] world in anticipation for days on end leading up to them.
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| This strategy relies on knowing which [[Economic_data_releases | risk events]] to trade which will come through experience but you can shortcut this by following along with the daily analysis that some of the more premium [[Trading_Tools#News_Feeds | news feeds]] offer. In that analysis, one of the biggest points is to highlight the tradeable [[Economic_data_releases | risk events]] that you should be [[Trading_psychology#10._Regaining_Focus | focusing]] on. You will also notice that a huge part of the [[Trading_Tools#News_Feeds | news feed]] revolves around [[Having_an_Edge_in_your_Trading | planning]] these [[Economic_data_releases | risk events]] each day.
| | You can access the main Wiki on [[How to Trade Risk Events]] [[How to Trade Risk Events | HERE]]. |
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| What is the [[Developing_your_Trading_Process | process]] for [[trading]] [[Economic_data_releases | risk events]]?
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| There are two main ways to trade a [[Economic_data_releases | risk event]]:
| | =='''[[How to Trade with Central Banks]]'''== |
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| | Understanding [[Central banks]] and how they conduct themselves in the [[Forex]] market is one of the most important concepts that a [[Forex]] trader needs to know about for effective [[trading]]. In this Wiki, we will explore [[How to Trade with Central Banks]] Including: |
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| ===1. Trading into a Risk Event===
| | [[How to Trade with Central Banks]] |
| | [[How_to_Trade_with_Central_Banks#How_to_Trade_Central_Bank_Statements | How to Trade Central Bank Statements]] |
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| We trade into [[Economic_data_releases | risk events]] because this is generally how [[Institutional_and_Retail_Traders#What_is_an_Institutional_Trader? | institutional traders]] trade them. Many people imagine [[Economic_data_releases | risk events]] to be chaos and visualize [[trading]] floors in utter [[Trading_psychology | panic]] with everyone running around trying to react to the headline number as it's released with huge amounts of money being made or lost. On some [[trading]] floors, this does happen but only on huge and particular events such as the hotly anticipated [[Economic_data_releases#Non-Farm_Payrolls_(NFP) | NFP figure]] or a surprise [[Monetary_Policy_Tools#Interest_Rates | interest rate move]] by a [[Central_banks | central bank]]. Generally, [[Economic_data_releases | risk events]] are traded in a much more controlled manner with careful [[Having_an_Edge_in_your_Trading | planning]] and pinpoint accuracy regarding entries and exits.
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| Let’s understand exactly how this works by looking at some examples of how these [[Economic_data_releases | risk events]] play out.
| | You can access the main Wiki on [[How to Trade with Central Banks]] [[How to Trade with Central Banks | HERE]]. |
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| First of all, [[Institutional_and_Retail_Traders | traders]] will look at the [[Economic_calendar | economic calendar]] and the expected forecasts for the following week on Friday afternoon. This allows them to see what [[Economic_data_releases | risk events]] are planned and most importantly how the economists and experts anticipate the results of the releases. Some show a better reading than the previous release, others show a worse reading, and some forecast no change at all. [[Institutional_and_Retail_Traders | Traders]] will then use that information to tie it in with the bigger picture.
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| For example, if we have UK average earnings next Wednesday and it is expected to be much better than the prior reading, and we also know that the [[The_Bank_of_England | BOE]] have made average earnings one of their key [[Trading_psychology#10._Regaining_Focus | focuses]] in deciding whether or not to hike their [[Monetary_Policy_Tools#Interest_Rates | interest rates]], it is likely that the market will start buying the Pound into that [[Economic_data_releases | risk event]] because it’s expected positive and this makes it more likely that the [[The_Bank_of_England | BOE]] will hike their [[Monetary_Policy_Tools#Interest_Rates | interest rate]] sooner.
| | =='''[[How to Trade Upcoming Economic Figures]]'''== |
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| The big picture is very important when deciding to trade into a [[Economic_data_releases | risk event]] and the general [[Trading_Rules_to_Live_By | rule]] is that we need to have market expectations match the overall picture for that [[currency]]. For example, if the event is expected to come out better than the previous one and the [[currency]] is bullish with the long-term [[Fundamental_Analysis | fundamentals]] then this is a decent reason to trade into a [[Economic_data_releases | risk event]]. If the event is expected to be negative or worse than the previous one and the [[currency]] is bullish in the long run then there is no real reason to trade into the event and should be left alone under most circumstances.
| | In the following Wiki, we will take a look at [[How to Trade Upcoming Economic Figures]] and how you might apply this concept to your trading. |
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| Once you have the expectation and you know the big picture [[Fundamental_Analysis | fundamentals]] your next step is to try and find as many analyst reports as possible. Analysts are experts at putting all of the information together, creating different scenarios, and trying to figure out the likelihood of something happening or not. They will write interesting [[Trading_Tools#Research_Articles | articles]] on what to expect from the upcoming [[Economic_data_releases | risk event]] and why they [[Trading_psychology | feel]] a particular outcome is likely. This gives you a final round-up of how the market is [[Speculating | viewing]] the event overall.
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| Once we have a [[Economic_data_releases | risk event]] that we are confident to trade the next step is actually entering the market. As with [[Trader_Types#Day_Traders | day trading]] the [[Trading_Tools#News_Feeds | news feed]] the important thing is not so much where you get in but rather that you are in at some point before the day of the [[Economic_data_releases | risk event]] itself. If you are correct in your analysis the markets will start moving in the expected direction in the run-up to the event and you can actually book your profits before the event is even released.
| | You can access the main Wiki on [[How to Trade Upcoming Economic Figures]] [[How to Trade Upcoming Economic Figures | HERE]]. |
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| As a general [[Trading_Rules_to_Live_By | rule]], the closer to the release you enter the market the fewer pips you should look to make. The goal of [[trading]] into [[Economic_data_releases | risk events]] is that you should take your profits [[Pre-Trade_Considerations | before the event]] is actually released so that you save yourself any of the [[risk]] associated with holding through a volatile [[Economic_data_releases | news release]].
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| Of course, if you want to hold on to your trade for extra pips that is fine too. However, if you are only getting in on the morning of the release then you may [[Pre-Trade_Considerations | consider]] holding through the event because you will not likely have many pips on the table. If you do that then you should always have a [[Trader_Types#Day_Traders | day trading]] size stop in place and if the [[Price_Action_Analysis | price]] is closer to your target than it is to your entry you should make sure that you do not lose pips on that trade. If the [[Economic_data_releases | risk event]] comes out as expected then you will likely get a reaction in your trade direction but if it comes out opposite as to what you and the markets were expecting then the [[Price_Action_Analysis | price]] will quickly reverse the entire move that led up to the [[Economic_data_releases | risk event]].
| | =='''[[How to Trade the Previous Session]]'''== |
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| The quickest way to get good at [[trading]] [[Economic_data_releases | risk events]] is, of course, to practice [[trading]] them in real time. | | The previous session almost always will have an impact on the current trading session. For this reason, it is useful to know how the previous session will impact the current session and how you can go about trading it. This is what the following Wiki will focus on. |
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| Let’s do a recap on how to trade into a [[Economic_data_releases | risk event]].
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| * First, you need the forecasts and expectations for something that matches the overall [[Fundamental_Analysis | fundamental]] [[Speculating | view]] for that [[currency]] either positive or negative.
| | You can access the main Wiki for [[How to Trade the Previous Session]] [[How to Trade the Previous Session | HERE]]. |
| * Next you [[Trading_Routine#Knowledge_Phase | research]] and check what other analysts are saying to give you extra [[Speculating | views]] and preparation.
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| * Finally, you need to get into the position as early as possible at the best possible [[Price_Action_Analysis | price]]. [[Technical_Analysis | Technicals]] could help with this but you could also use a position splitting technique if you are unsure about getting in at the market or waiting for a [[Retracements | pullback]]. If the trade plays out you should look to exit sometime [[Pre-Trade_Considerations | before the event]] so that you are not exposed to any more [[risk]].
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| ===2. Trading out of a Risk Event=== | | =='''[[Trading Surprise Data and News]]'''== |
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| Sometimes there will be no clear expectations for a [[Economic_data_releases | risk event]] that we can trade into despite the fact that the event is [[Speculating | viewed]] as important and potentially a high-impact event. In this scenario, we keep a close eye on the event and try to trade out of it instead. This is generally [[Speculating | viewed]] as safer because we know very quickly whether we were right or wrong with our expectations. If we didn’t have any expectations then waiting for the [[Economic_data_releases | risk event]] to be released will tell us how to trade it based on the deviation in the number from the expectation.
| | In the following 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. |
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| '''How can we trade out of a [[Economic_data_releases | risk event]] event?'''
| | You can access the main Wiki for [[Trading Surprise Data and News]] [[Trading Surprise Data and News | HERE]]. |
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| The [[Developing_your_Trading_Process | process]] of [[trading]] out of a [[Economic_data_releases | risk event]] is very simple. First, we highlight the events that could potentially impact the markets then we do the same kind of [[Trading_Routine#Knowledge_Phase | research]] and determine how anticipated the event is by the markets and analysts. Next, we identify what is a possible deviation from the expected [[Economic_data_releases | figure]] that could potentially impact the [[Price_Action_Analysis | price]] significantly.
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| For example, if an [[Economic_data_releases#Unemployment | unemployment figure]] is expected to show a reading of 5.8% then a reading over 6.0% would be considered much worse and potentially worth [[trading]] short. Conversely, if a reading of 5.5% came out this would be considered good and worth [[trading]] in the long direction.
| | =='''[[Trading with the News Feed]]'''== |
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| This does not mean that you want to be [[trading]] every [[Economic_data_releases | risk event]] whenever there is a deviation. Rather, it’s best to line up deviations with the overall [[Fundamental_Analysis | fundamental]] picture. For example, we want to be waiting for an event just in case there is a positive deviation because this lines up with the overall positive [[Fundamental_Analysis | fundamentals]] that is driving the [[currency]] right now. The opposite is true for currencies with a negative [[Speculating | view]] on them; we would be looking for negative deviations on high-impact events.
| | News Feeds can provide many trading opportunities if traders know how to capitalize on them properly. In this Wiki, we will cover how to trade with the news feed so you can understand how to add this potentially profitable strategy to your trading toolkit. |
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| While you are learning it will pay dividends to really make sure that you are getting as much analysis from the premium [[Trading_Tools#News_Feeds | news feeds]] as you can because they will walk through the plan of each [[Economic_data_releases | risk event]] each day. The [[Trading_Tools#News_Feeds | news feed]] will contain detailed [[Having_an_Edge_in_your_Trading | plans]] and [[Trading_Routine#Knowledge_Phase | research]] for every major event that you can use to help with your [[trading]]. This makes it very important to get a trial of some of the various [[Trading_Tools#News_Feeds | news feeds]] and [[Pre-Trade_Considerations | consider]] factoring in the cost of this to your [[Having_an_Edge_in_your_Trading | business plan]].
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| The general [[Trading_Rules_to_Live_By | rule]] for [[trading]] out of [[Economic_data_releases | risk events]] is taking advantage of unexpected deviations from what the market is expecting. Of course, you cannot [[Having_an_Edge_in_your_Trading | plan]] these because they are unexpected but it is certainly worth being at your desk when the releases come out so that you are ready to take advantage when this type of event does occur.
| | You can access the main Wiki for [[Trading with the News Feed]] [[Trading with the News Feed | HERE]]. |
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| Now that we have a collection of short-term strategies the next thing to do is to start zooming out a little bit and look at ways to trade the markets without being tied to your desk if that is the path that you wish to go. It’s worth having a good understanding of how to trade in this way for when you potentially [[Risk_Management | manage]] much larger funds that requires more careful [[Risk_Management | trade management]].
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| | =='''[[Trading Fundamental Pullbacks]]'''== |
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| ===How to Trade Upcoming Risk Events===
| | [[Trading Fundamental Pullbacks]] is a simple strategy that involves patience to wait for the medium term sentiment to bring prices back to a place where it makes sense for large investors to see a bargain and want to get back in or add to an existing position. In the following Wiki, we will explore: |
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| After you have your assessment of the [[Fundamental_Analysis | fundamentals]] look for an [[Economic_data_releases | economic event]] that is expected to be better than the previous number to be released. If the [[Fundamental_Analysis | fundamentals]] are not looking so great then you would be looking for the [[Economic_data_releases | economic event]] to come out worse than the previous.
| | * [[Trading Fundamental Pullbacks]] |
| | * [[Trading_Fundamental_Pullbacks#Trading_Pullbacks_against_the_Long_Term_Fundamental_Trend | Trading Pullbacks against the Long Term Fundamental Trend]] |
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| As long as the number is expected to come out in line with the [[Fundamental_Analysis | fundamentals]] [[Institutional_and_Retail_Traders | traders]] can place a trade before the [[Economic_data_releases | figure]] comes out in line with the [[Fundamental_Analysis | fundamental]] outlook. If we are looking at a positive [[Fundamental_Analysis | fundamental]] situation and the [[Economic_data_releases | economic number]] comes out in line or better than expected the pair will likely rally in the direction of the [[Fundamental_Analysis | fundamentals]]. However, if the number misses expectations we will probably see a decline against the big picture.
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| The point is that the [[Institutional_and_Retail_Traders#What_is_an_Institutional_Trader? | big players]] in the market are placing their trades in accordance with the long-term [[Fundamental_Analysis | fundamental]] outlook. One [[Economic_data_releases | figure]] that is counter to this outlook will not change anything in a series of many [[Economic_data_releases | figures]] in line with the [[Fundamental_Analysis | fundamentals]]. All this deviation will do is simply provide a better place for the [[Institutional_and_Retail_Traders | professional traders]] to get back into the market at a better [[Price_Action_Analysis | price]]. In this case, we should expect the market to continue back in line with the [[Fundamental_Analysis | fundamentals]] shortly after the [[Economic_data_releases | figure]] is released if the [[Economic_data_releases | figure]] was not in line with the [[Fundamental_Analysis | fundamentals]].
| | You can access the main Wiki for [[Trading Fundamental Pullbacks]] [[Trading Fundamental Pullbacks | HERE]]. |
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| In essence, you potentially profit by getting in [[Pre-Trade_Considerations | before the event]] even if the event does not come out as expected. In this case, you will have to sit through some drawdown but the idea is that if the [[Fundamental_Analysis | fundamentals]] remain intact then this drawdown will be temporary and [[Price_Action_Analysis | price]] will eventually come back. This also gives you an opportunity to add to the trade when it has [[Retracements | pulled back]] against you. However, you should not already have a full [[risk]] amount on the position if you are [[Having_an_Edge_in_your_Trading | planning]] on adding to your position if the [[Price_Action_Analysis | price]] goes against you. Your trading plan should detail this.
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| The goal is to get in at the best possible [[Price_Action_Analysis | price]] so adding intelligently to a position at a better [[Price_Action_Analysis | price]] isn’t a bad idea. Of course, solid [[Risk_Management | money management]] should be used and this type of trade should only be employed by [[Institutional_and_Retail_Traders | traders]] that have plenty of experience in the markets.
| | =='''[[Positioning Yourself with Medium Term Sentiment]]'''== |
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| | In this Wiki, we will take a look at Positioning Yourself with Medium Term Sentiment and how you can apply that to your trading. |
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| =='''How to Trade with Central Banks'''==
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| The [[Institutional_and_Retail_Traders | big traders]] in the [[Forex]] market are all [[trading]] around the [[Central_banks | Central Banks]] of individual countries. The market will react every time a [[Central_banks | central bank]] takes action by implementing a [[Monetary_Policy_Tools | policy]] or mandate or even when they say something in or out of tune from their normal rhetoric. It could be as simple as a member speaking more [[Hawks_and_Doves | hawkish]] or [[Hawks_and_Doves | dovish]] than they normally do.
| | You can access the main with on [[Positioning Yourself with Medium Term Sentiment]] [[Positioning Yourself with Medium Term Sentiment | HERE]]. |
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| If a [[Central_banks | central bank]] has recently changed its tone, just the mere mention of something such as [[Economic_Cycles#Inflation_and_Deflation | inflation]], could completely change the overall [[Trends | trend]] of that [[currency]].
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| The primary role of the [[Central_banks | central bank]] is to control the [[Monetary_Policy_Tools | money supply]] for the country in which it sits and maintain economic order. To do this the [[Central_banks | central bank]] will have targets which usually revolve around [[Economic_Cycles#Inflation_and_Deflation | inflation]] and growth, both of which are usually around 2%.
| | =='''[[Carry Trading]]'''== |
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| | [[Carry Trading]] is a time-tested strategy that has been used by large institutions for decades. In this Wiki, we will take a look at what Carry trading is and how you can apply this to your own trading efforts. |
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| '''Central Banks will typically offer [[Forward_guidance | forward guidance]] to the markets for 2 reasons:'''
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| * To prevent unnecessary market crashes or [[Trading_psychology | panics]] about what the [[Central_banks | bank]] might do, which is caused by [[Speculating | speculation]] in the market.
| | You can access the main with on [[Carry Trading]] [[Carry Trading | HERE]]. |
| * To ensure that their actions and policies have a [[Trading_psychology | desired]] effect. For example, if they are deliberately trying to weaken their [[currency]] then they will make it explicitly clear to the market and outline how they intend to do this, followed by expressing their determination to do this no matter what happens.
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| The key [[Trading_Rules_to_Live_By | rule]] of [[Monetary_Policy_Tools | central bank tools]] is that everything revolves around [[Monetary_Policy_Tools#Interest_Rates | interest rates]]. A large part of the time all the markets are thinking is "How will this new information impact [[Monetary_Policy_Tools#Interest_Rates | interest rates]]?" The answer to that question is what drives [[Price_Action_Analysis | prices]] up or down.
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| '''[[Developing_your_Trading_Process | Process]] for monitoring central banks:'''
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| # Follow the [[Trading_Tools#News_Feeds | news feeds]] and look out for [[Trading_Tools#Research_Articles | articles]] written right after any major [[Central_banks | central bank]] statements that give an insight into how the markets are reacting to this information, and how you might best trade it.
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| # [[Central_banks | Central banks]] release all of their policy actions and plans via specially planned statements. You will find when these statements will be released on the [[Economic_calendar | economic calendar]] weeks in advance, so you will need to be noting the dates and then monitor all related [[Trading_Tools#Research_Articles | news articles]] to get an idea of what [[Institutional_and_Retail_Traders | traders]] are expecting and how analysts expect these events to move the currencies.
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| # Place your trades in line with expectations and existing market reactions. Do not become scared out of your positions by the short term [[Sentiment_Analysis#Volatility | volatility]]. Closely monitor the [[Fundamental_Analysis | fundamental]] situation and make sure that your expectations and previous reasons for entering any positions are still valid on a [[Forex_Trading_Sessions | session-by-session]] basis.
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| ===How to Trade Central Bank Statements===
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| [[Trading]] [[Central_banks | central bank]] statements can produce large [[Price_Action_Analysis | price]] moves in the market and be extremely profitable if you know how to catch the move.
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| '''There are 2 main ways to trade a [[Central_banks | central bank]] statement:'''
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| '''1. Analyse the market expectations and position yourself [[Pre-Trade_Considerations | before the event]]:'''
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| By entering before the statement you have a much higher profit potential but the [[risk]] is higher if it does not play out as expected. The key is to have a very firm expectation regarding the upcoming statement. If there is a firm reason to think that the [[Central_banks | central bank]] will announce some type of action with regard to its [[Monetary_Policy_Tools| monetary policy]] or if they change their tone of [[Monetary_Policy_Tools#Central_Banker_Language | language]] then this will almost certainly move the market if it happens.
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| '''2. Wait for the [[Central_banks | central bank]] to confirm the market's expectations and then trade the aftermath'''
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| This is where you look to trade the [[Retracements | pullback]] after the [[Economic_data_releases | news]] rather than getting in [[Pre-Trade_Considerations | before the event]]. The key to this strategy is to be patient and wait for [[Price_Action_Analysis | price]] to [[Retracements | pullback]] to an attractive level.
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| =='''How to Trade Upcoming Economic Figures'''==
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| [[Trading]] the [[Economic_calendar | calendar]] can be very profitable and the key is utilizing and understanding the information and the expectations available well ahead of the [[Economic_data_releases | figure or event]] being released.
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| When deciding whether or not to trade an [[Economic_data_releases | economic figure]], traders need a deep understanding of the ongoing [[Fundamental_Analysis | fundamentals]], the current [[Sentiment_Analysis | sentiment]], and what the market is expecting from the [[Economic_data_releases | figure]].
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| For example, if the [[Fundamental_Analysis | fundamentals]] are extremely bullish for the [[currency]] and the [[Economic_data_releases | figure]] is expected to come out worse than the previous one, this would generally be a trade to avoid, because there is a contradiction between the [[Fundamental_Analysis | fundamentals]] and the [[Economic_data_releases | news event]].
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| What we want to see is the [[Economic_data_releases | figure]] to have expectations that are in line with the [[Fundamental_Analysis | fundamentals]]. We want the [[Economic_data_releases | figure]] to be better than the previous one if the [[Fundamental_Analysis | fundamentals]] are bullish. In this situation, there is a good chance it will happen and the market will look for excuses to keep buying the [[currency]] in line with the buying that has already taken place.
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| If the [[Economic_data_releases | figure]] doesn’t meet expectations it will likely [[Retracements | pull back]]. The [[Fundamental_Analysis | fundamentals]] will still remain intact because one bad [[Economic_data_releases | figure]] in a long-standing series of positive [[Economic_data_releases | figures]] doesn’t change the long-term outlook for that [[currency]]. The [[Trends | counter-trend]] move will most likely be temporary and the [[Price_Action_Analysis | price]] will soon recover, likely sending the trade into profit anyway. This is the kind of situation that gives us a nice [[Retracements | pullback]] to get in on and make some pips. This will be the case unless the deviation was so large that we have no choice but to reevaluate the [[Fundamental_Analysis | fundamentals]]. This works in the same fashion for weak currencies. We would simply look to sell or go short instead.
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| Positioning yourself directly ahead of these events is more [[Risk | risky]], but as long as you only trade in line with the [[Fundamental_Analysis | fundamentals]], drawdowns will likely be temporary. Waiting for the [[Economic_data_releases | figure]] to [[Retracements | pullback]] is another way to get in this trade but can be trickier and requires a higher level of skill and patience. Sometimes the [[Price_Action_Analysis | price]] doesn’t come back if the deviation on the [[Economic_data_releases | figure]] is big enough to force market participants to rethink their game plan.
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| =='''How to Trade the Previous Session'''==
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| There are 3 main [[Forex_Trading_Sessions | sessions]] that we have already learned about in a previous Wiki where you can find all the details [[Forex_Trading_Sessions | HERE]]. They are:
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| * [[Forex_Trading_Sessions#Asia_Pacific_Session | The Asian Session]]
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| * [[Forex_Trading_Sessions#The_London_Session | The London Session]]
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| * [[Forex_Trading_Sessions#The_New_York_Session | The New York session]]
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| This [[The_Basic_Cycle | cycle]] repeats for the entire 5-day trading week making it a [[Forex_Market_Hours | 24 hour]] market.
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| What you are looking for is what has happened in the [[Forex_Trading_Sessions | previous session]] that has moved the markets. Sometimes nothing happens but oftentimes a country has released an [[Economic_data_releases | economic figure]] that affected the [[currency]] that it belongs to in the [[Forex_Trading_Sessions | previous session]].
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| What often happens is that [[Institutional_and_Retail_Traders | traders]] from the [[Forex_Trading_Sessions | new session]] will trade the continuation of the move from the [[Forex_Trading_Sessions | previous session]].
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| One strategy is to enter in the direction of the move from the [[Forex_Trading_Sessions | previous session]] slightly before the [[Forex_Trading_Sessions | next session]] is in full swing. In this way the trader can catch any potential move before or as it starts to continue.
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| This strategy is simple and mainly a [[Sentiment_Analysis | sentiment]] based strategy where [[Institutional_and_Retail_Traders | traders]] look for anything that has moved the [[Price_Action_Analysis | price]] of a particular [[currency]] in the previous [[Forex_Trading_Sessions | trading session]] to continue moving it into the current and possibly [[Forex_Trading_Sessions | following sessions]].
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| The trade begins with a thorough assessment of what has happened in the [[Forex_Trading_Sessions | previous session]], which [[Economic_data_releases | news]] has been released, how it impacted the market, and which currencies were affected. [[Institutional_and_Retail_Traders | Traders]]then determine whether or not to anticipate this move to continue in the [[Forex_Trading_Sessions | new session]] based on what has already taken place.
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| For example, if some key Australian [[Economic_data_releases | data]] was released during the [[Forex_Trading_Sessions#Asia_Pacific_Session | Asian session]] but the AUD [[currency]] was unaffected then it’s very unlikely that [[Institutional_and_Retail_Traders | traders]] will look to get in on a trade with the Australian dollar in the [[Forex_Trading_Sessions | following session]]. On the other hand, if the event came out and showed a large deviation and the [[Price_Action_Analysis | price]] of the AUD moved heavily, then we can expect [[Institutional_and_Retail_Traders | traders]] in the next [[Forex_Trading_Sessions | session]] to get in on the move too.
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| This strategy relies on having a real-time [[Trading_Tools#News_Feeds | news feed]] that updates the market [[Sentiment_Analysis | sentiment]] instantly. With both entry methods, it is important to keep your eye on the [[Trading_Tools#News_Feeds | news feeds]] for any events that could change the [[Sentiment_Analysis | sentiment]] and send [[Price_Action_Analysis | price]] moving in the opposite direction.
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| '''There are 2 ways to trade this type of event:'''
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| # '''Trade the [[Breakouts_and_Breakdowns | Breakout]]:''' This can be done with a Market Profile Trade because it may be that [[Price_Action_Analysis | price]] is close to the highs or lows. This allows you to enter the move should it simply continue into the [[Forex_Trading_Sessions | next session]] with little or no [[Retracements | pullback]]. The Market Profile Trade can be found in the [[Technical Trading Strategies]] Wiki.
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| # '''Trade the [[Retracements | Pullback]]:''' Often times the market will take a break between [[Forex_Trading_Sessions | sessions]] and the [[Price_Action_Analysis | price]] will [[Retracements | pull back]] against the move as [[Sentiment_Analysis#Profit_Taking | profit taking]] happens. This can provide some great [[trading]] opportunities from levels of [[Support_and_Resistance | support and resistance]], but patience is required to wait for the correct [[Retracements | pullbacks]].
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| =='''Trading Surprise Data and News'''==
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| 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.
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| The easiest way to see whether or not this has occurred is to [[Trading_Routine#Knowledge_Phase | research]] each [[Economic_data_releases | 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 [[Retracements | 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 [[Trading_Tools#Charting_Software | charts]]. Lots of new and [[Institutional_and_Retail_Traders | 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.
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| An example of a time that we can apply this trade is when a [[Central_banks | 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.
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| Another example is if something really unexpected happens completely out of the blue. For example, if a [[Central_banks | 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_banks | 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.
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| This trade setup should not be used on small [[Economic_data_releases | data points]] that have a deviation from the expected [[Economic_data_releases | figure]] because it is better to trade those on [[Retracements | pullbacks]].
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| We also need the [[Sentiment_Analysis | sentiment]] at the time in the right order to get any kind of tradeable move such as positive [[Sentiment_Analysis | sentiment]] that is suddenly and instantly changed to negative from whatever the [[Economic_data_releases | news]] was. As long as the event was extremely unexpected and had a direct impact on the expectations of the market for the [[Central_banks | central bank's]] [[Monetary_Policy_Tools | monetary policy]] then you are probably good to [[Pre-Trade_Considerations | consider]] this type of trade setup.
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| There are a few methods for taking advantage of this. One simple [[Technical_Analysis | technical setup]] is entering the market right before or at the close of the first 5 minute [[Japanese_Candlesticks | candle]] after this surprise event has taken place. Stops can be placed either at the halfway point of the [[Japanese_Candlesticks | candle]] or just above or below the 5 minute [[Japanese_Candlesticks | candle]] away from your entry. This will be something that you perfect over time with practice with this type of trade.
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| 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.
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| Targets should be based on normal things such as [[Technical_Analysis#Previously_Traded_Price_Areas | old highs or lows]] and the [[Technical_Analysis#Average_Daily_Range | average daily range]] of the pair. You can also hold for longer if there is a strong [[Fundamental_Analysis | fundamental]] reason supporting the move and the market has a clear expectation of where the [[Price_Action_Analysis | price]] of the pair could get to in the long run.
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| 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 [[Trading_Tools#News_Feeds | news feeds]] intensely but when you get a few trades like this each month it will be worth it.
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| =='''Trading with the News Feed'''==
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| Most traders working at [[Trader_Scouting_and_Prop_Firms_Overview_and_Comparison | professional firms]] become [[Trader_Types#Day_Traders | day traders]] because this is a good combination of regular [[trading]] activity while keeping [[Risk | risks]] limited. The [[Trading_Tools#News_Feeds | news feeds]] are the main source of all our information and [[trading]] opportunities. Without these [[Trading_Tools#News_Feeds | feeds]] you would be effectively [[trading]] blind so we will now look at finding trades that come from the [[Trading_Tools#News_Feeds | news feeds]] each day.
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| [[Trader_Types#Day_Traders | Day trading]] the [[Trading_Tools#News_Feeds | news feeds]] is actually fairly simple and is one of the best ways to find high quality [[trading]] setups. [[Trader_Types#Day_Traders | Day trading]] is not as precise as [[trading]] and [[Trader_Types#Scalpers | scalping]] key levels because the main thing behind a successful trade is not the place that you enter but rather the reasons for the move.
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| Let’s walk through a typical day of scanning the [[Trading_Tools#News_Feeds | news feed]] to get an idea of the type of things we are looking for.
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| Your analysis starts an hour or two before the [[Forex_Trading_Sessions | session]] opens as you are reading the overnight or [[Forex_Trading_Sessions | pre-session]] [[Economic_data_releases | news]] and you are looking for core items that [[Institutional_and_Retail_Traders | traders]] getting to their desks are likely to react to. This does take practice to master but the golden [[Trading_Rules_to_Live_By | rule]] of [[Sentiment_Analysis | sentiment]] is that the more something is known the less of an impact it will have on the market.
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| You are looking for surprises or changes in the tone from [[Central_banks | central banks]] or even [[Economic_data_releases | breaking news]] that could change the [[Speculating | markets view]] on a specific [[currency]] or how the [[Central_banks | central bank]] may approach its [[Monetary_Policy_Tools#Interest_Rates | interest rate]] adjustments in the future. If you see something of note then the next step is to [[Having_an_Edge_in_your_Trading | plan]] your trade.
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| At this point, you may have found a trade and you can either jump straight into at the current market [[Price_Action_Analysis | price]] or try to wait for the [[Price_Action_Analysis | price]] to [[Retracements | pullback]] to a nearby level of [[Support_and_Resistance | support or resistance]]. The [[risk]] of jumping in is that the [[Price_Action_Analysis | price]] might [[Retracements | pullback]] first and you could potentially be sitting in drawdown which means you will need a larger stop loss to accommodate for this. The [[risk]] of waiting for a [[Retracements | pullback]] is that you might miss the move simply because there may not be a [[Retracements | pullback]] given a clear reason to trade it from the open.
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| How do you decide what to do in this scenario? The best way to know how to react to the details of market information is simply practice and experience... Sorry, but that is simply what any profitable trading strategy is going to come down to; Practice and Experience. For example, the first time you see a [[Safe_Haven_Flows | safe haven flow]] you may think that the market has gone too far too fast but it then continues for several hundred more pips before thinking about [[Retracements | pulling back]]. We can sit here and tell you all about how aggressive proper [[Safe_Haven_Flows | safe haven flows]] tend to be but until you have actually seen one in full force in live market action you won’t fully understand the concept.
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| Remember, you are now past the training stage and as soon as you start placing trades on your [[The_Best_and_Most_Popular_Forex_Platforms_for_Demo | practice account]] you will be at the skill building stage which is where you will develop your experience. One of the best ways to build your skills is to practice them in the live markets as much as possible.
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| '''Trading Tip:'''
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| One tip to help your [[trading]] in the early stages is to split your position into two pieces. You can enter one at market and enter the other at your proposed area of [[Support_and_Resistance | support or resistance]] should the pair [[Retracements | pullback]] to that level. This gives you two chances to jump into a trade but only [[Risk | risking]] one full unit of [[risk]]. If the trade takes off straight away then you get to at least make a half profit and if it [[Retracements | pulls back]] you average your positions at a slightly worse [[Price_Action_Analysis | price]] than the area of [[Support_and_Resistance | support or resistance]] would have offered but you still are only [[Risk | risking]] one unit of [[risk]] on the [[The_Best_and_Most_Popular_Forex_Platforms_for_Demo | account]].
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| This is only a starting technique to assist you in the early months because after a while you will start to see a pattern in your [[trading]] that will give you a natural confidence of when to trade and place your orders. This will give you a nice day trade that you can hold as the [[Forex_Trading_Sessions | session]] plays out. Because you are tracking every trade this will also give you lots of [[Economic_data_releases | data]] to look back over to see if over the long run if it would be more profitable for you to jump straight in or wait for the [[Retracements | pullback]].
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| Obviously, you will need to have a stop loss in place and a take profit in mind. Generally, you want your stop loss orders to be between 25-50% of the [[Technical_Analysis#Average_Daily_Range | average daily range]] away from your entry and your target should be where the market has reacted from in the most [[Forex_Trading_Sessions | recent sessions]]. It’s generally not effective to try and day trade past an established high or low because this will result in losses and not cashing in on good trades at the appropriate times. The best technique is to take your trade off just before the top or bottom of these levels. It is never wise to think the market will make a new reaction high or low unless there is something extreme happening at that time.
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| '''What happens if you do not see a trade at the open of the session?'''
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| You keep watching the [[Trading_Tools#News_Feeds | news feed]] and switch to a mode where you are looking for surprises or comments that the markets are not expecting but will [[Speculating | view]] as fresh reasons to trade a pair in a certain direction. These come through as headlines and there are no set standards of news or phrases we can list but the golden [[Trading_Rules_to_Live_By | rules]] of [[Sentiment_Analysis | sentiment]] are key here.
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| Generally, we are looking for an announcement from a [[Central_banks | central banker]] or comments from someone else closely related. For example, look for things like a [[Hawks_and_Doves | dove]] commenting that rate hikes should be coming sooner or a [[Hawks_and_Doves | hawk]] stating that there is a strong reason for rate cuts. These are things that can be perceived as out of line with their traditional stance.
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| Typically, the premium [[Trading_Tools#News_Feeds | news feeds]] will have a list of the current [[Hawks_and_Doves | hawks]] and doves for each [[Central_banks | central bank]] as part of their service. However, you can get a list by doing a Google search just as easily.
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| This is something that you will get better at over time so we suggest that you make this one of your staple strategies and start practicing it straight away. By keeping your eyes on the [[Trading_Tools#News_Feeds | feed]] for these types of comments or for [[Economic_data_releases | breaking news]] that could cause the markets to [[Trading_psychology | panic]] and buy [[Safe_Haven_Flows | safe haven currencies]] you will start to see trade opportunities almost daily as the headlines appear and the [[Price_Action_Analysis | prices]] react.
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| As you can see, [[Trader_Types#Day_Traders | day trading]] the [[Trading_Tools#News_Feeds | news feed]] does not always apply to some of the [[Technical_Analysis | technical concepts]] we have talked about in other Wikis. The main [[Trading_psychology#10._Regaining_Focus | focus]] is on the [[Fundamental_Analysis | fundamental]] or [[Sentiment_Analysis | sentiment]] reason for the trade rather than where you should specifically get in or get out. It is very important to understand that [[trading]] with the [[Fundamental_Analysis | fundamentals]] or [[Sentiment_Analysis | sentiment]] is not something that can be turned into a mechanical system or method that you do blindly over and over again. Rather, it is something that you will get better and better at over time by applying the correct concepts and then practicing and learning from each trade you take.
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| To get a good [[Trading_psychology | feel]] for how this plays out let's go to the [[Trading_Tools#News_Feeds | feed]] and look at the kind of things that we could use to find a possible trade opportunity to give you a good starting point.
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| ===How to Scalp Using Real Time News Feeds===
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| The concept of [[Trader_Types#Scalpers | scalping]] the real time [[Trading_Tools#News_Feeds | news feeds]] is that you intensely monitor the [[Trading_Tools#News_Feeds | news feeds]] for any information that could change the current market [[Sentiment_Analysis | sentiment]] and drive the [[Price_Action_Analysis | price]] of a [[currency]] over a short period of time within the [[Forex_Trading_Sessions | trading session]].
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| The kind of [[Economic_data_releases | news]] that you want to look out for are:
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| * Comments from [[Central_banks | central bank]] members that have a different tone from how that specific member usually talks. For example; [[Hawks_and_Doves | dovish]] comments from a [[Central_banks | central bank]] member that is known to be [[Hawks_and_Doves | hawkish]].
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| * Another would be a geopolitical event like war.
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| * Debt ceiling issues.
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| * Political leaders saying things that can change the amount of money withing the economy such as new bills or legislation.
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| * Pandemic concerns.
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| The key here is the market needs to have its expectations abruptly changed in the short term. These news trades are short term trades looking for 10-40 pips depending on how large the [[Technical_Analysis#Average_Daily_Range | average daily range]] for the pair is. The larger the range of the pair then the more potential pips there could be in a [[Trader_Types#Scalpers | scalp]] trade. The smaller the [[Technical_Analysis#Average_Daily_Range | average daily range]] of the pair then the fewer potential pips there might be in a [[Trader_Types#Scalpers | scalp]] trade.
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| In order to trade these you simply need to know what is normal to the market and what is not normal and that means you need to be in tune with the market. This will take time and experience in watching how these real time [[Economic_data_releases | news events]] play out.
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| =='''Trading Fundamental Pullbacks'''==
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| [[Trading]] [[Fundamental_Analysis | fundamental]] [[Retracements | pullbacks]] is probably the simplest strategy of all and basically involves patiently waiting for the short or medium term [[Sentiment_Analysis | sentiment]] to change the flow of the [[Price_Action_Analysis | price]] away from the overall [[Fundamental_Analysis | fundamental]] [[Trends | trend]].
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| A classic example of this can be taken from the example we used earlier when in 2013 the [[The_Bank_of_Japan | BOJ’s]] decision to launch its [[Monetary_Policy_Tools#Quantitative_Easing | QE program]]. This had the effect of the severe weakening of the Yen as the [[The_Bank_of_Japan | BOJ]] printed trillions worth of Japanese Yen every month in an attempt to get [[Economic_Cycles#Inflation_and_Deflation | inflation]] up to its target range. At the same time, the [[Federal_Reserve | Federal Reserve]] in the US was about to stop their own [[Monetary_Policy_Tools#Quantitative_Easing | QE program]] and start the long march towards raising [[Monetary_Policy_Tools#Interest_Rates | interest rates]] and normalizing [[Monetary_Policy_Tools | monetary policy]]. This gave the perfect [[Sentiment_Analysis#Central_Bank_Policy_Divergence | divergence]] between two [[Central_banks | central banks]] both moving in completely opposite directions with their [[ Monetary_Policy_Tools | monetary policies]]. One [[Central_banks | central bank]] was starting and the other was stopping [[Monetary_Policy_Tools#Quantitative_Easing | QE]]. When this happens there can only be one way that the USDJPY will go which is up provided all else remains equal.
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| As [[Institutional_and_Retail_Traders | traders]], we would buy [[US_dollar | dollars]] and sell Japanese Yen. However, it’s not as simple as the pair moving up every single day. There are short term events that will cause the pair to drop and sometimes quite heavily. Let’s look at one example of this and how it affected the pair during this time.
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| At the beginning of 2014 we had a crisis in emerging markets as [[Institutional_and_Retail_Traders | traders]] started [[Trading_psychology | panicking]] about the fact that the [[Federal_Reserve | Fed]] was ending its flow of [[Monetary_Policy_Tools#Interest_Rates | cheap money]] via [[Monetary_Policy_Tools#Quantitative_Easing | QE]]. They reasoned that this meant that emerging markets would suffer as the investment from that [[Monetary_Policy_Tools#Interest_Rates | cheap money]] would dry up. The equity markets went into a chaotic freefall and everyone headed for the traditional [[Safe_Haven_Flows | safety]] of the Japanese Yen.
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| Despite overall [[Fundamental_Analysis | fundamentals]] being in place the short term move saw the USDJPY drop over 450 pips as highlighted by the blue box on the chart below. This was quite a large move given how strong the [[Sentiment_Analysis#Central_Bank_Policy_Divergence | central bank divergence]] was at the time. However, when the market is [[Trading_psychology | fearful]] it will react strongly. The USDJPY eventually recovered and reached over 125.00.
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| https://i.imgur.com/0xHcZmP.jpg
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| Other Yen pairs such as the GBPJPY fell as much as 1,000 pips as everyone bought the Yen as a temporary [[Safe_Haven_Flows | safe haven]]. Many [[Institutional_and_Retail_Traders | traders]] also [[Trading_psychology | panicked]] out of their long term [[Fundamental_Analysis | fundamental]] positions but other [[Institutional_and_Retail_Traders | traders]] had been waiting for this type of event. The reason was that they now had a really cheap [[Price_Action_Analysis | price]] at which to enter the trade and ride up the move as the markets calmed down and regained their rational thinking and returning to the [[Sentiment_Analysis#Central_Bank_Policy_Divergence | central bank divergence trade]].
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| This type of [[trading]] requires patience and [[Trading_psychology#10._Regaining_Focus | focussed]] [[Trading_Routine#Knowledge_Phase | research]] but can yield fantastic returns if you can keep a cool head when the rest of the market gets sucked into some temporary story that will not last longer than a few weeks.
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| If you are already in a long term [[Fundamental_Analysis | fundamental]] position you should have your stops in place because you never know how far the market will move against you as not many people can stomach 10-20% drawdowns especially if they are managing client [[The_Best_and_Most_Popular_Forex_Platforms_for_Demo | accounts]]. At the same time make sure to [[Having_an_Edge_in_your_Trading | plan]] ahead. Perhaps you could identify a few key [[Price_Action_Analysis | price]] levels that look good to get back in if the market gives you a chance.
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| The Yen pairs are generally more volatile than most because of the [[Safe_Haven_Flows | safe haven]] element but these types of [[Retracements | pullbacks]] will happen across all currencies for reasons as simple as [[Institutional_and_Retail_Traders | traders]] exiting their trades and [[Sentiment_Analysis#Profit_Taking | taking profits]].
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| The best way to approach this type of [[trading]] is to do your [[Trading_Routine#Daily_Routine | daily research]] as normal and then relate this to where the [[Price_Action_Analysis | prices]] of various pairs have been [[trading]] over recent days or weeks. You will naturally notice that some pairs are just not where they should be [[trading]] and in the completely opposite direction based on the policies of the two [[Central_banks | central banks]]. When you see this it’s time to zoom in on the pair and find out exactly why it has been moving as it has using the research and [[Trading_Tools#News_Feeds | news feeds]]. If it is due to some temporary event then you can [[Pre-Trade_Considerations | consider]] this an opportunity to enter the pair. Splitting your entries could be used to enter which is a perfectly valid method for your [[trading]] as a whole.
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| '''What questions you should be asking when investigating an opportunity?'''
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| When the short term [[Sentiment_Analysis | sentiment]] is over will the [[Fundamental_Analysis | fundamental]] [[Sentiment_Analysis#Central_Bank_Policy_Divergence | divergence]] between the two [[Central_banks | central banks]] still be in place?
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| If the answer is yes then you need to start [[Having_an_Edge_in_your_Trading | planning]] your entry and identify the [[Best_and_Worst_Times_to_Trade | best time]] to start getting involved in the market. There is no [[Best_and_Worst_Times_to_Trade | perfect time]] because anything can happen at any time which is why we go to great lengths at making [[Risk_Management | risk management]] a large part of everything we do. This way, whatever happens in the markets we are protected.
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| If you are [[Trader_Types#Day_Traders | day trading]] then you will naturally see these opportunities as well but please do not [[Trading_psychology | feel]] that you should only be [[trading]] a specific strategy for your system. Remember, [[trading]] is about finding opportunities. If you find gold in your garden you wouldn’t leave it in the ground because selling gold is not your method of making money, you would seize the opportunity and make the extra money. The same is going to be true of your career as a [[Institutional_and_Retail_Traders | trader]]. Your job is to seek opportunities to make money and everything that you have learned here will help you spot these opportunities like a professional. As you trade and practice these skills the amount of money you make will gradually increase over time.
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| ===Trading Pullbacks against the Long Term Fundamental Trend===
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| Once you have determined which currencies should be moving in which direction you then wait for these currencies to move in the opposite direction that they should be moving. Essentially you are waiting for a [[Retracements | pullback]] to happen against the overall big picture.
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| [[Retracements | Pullbacks]] against the long term [[Fundamental_Analysis | fundamental]] picture can happen for a variety of [[Sentiment_Analysis | sentiment]] reasons that we have already looked at in our previous Wiki on [[Sentiment Analysis]]. Some of the more common reasons are [[Sentiment_Analysis#Profit_Taking | profit taking]], [[Sentiment_Analysis#Risk_On_and_Risk_Off | risk on risk off]], [[Safe_Haven_Flows | safe haven flows]], etc.
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| Marking key levels of [[Support_and_Resistance | support and resistance]] can give you great ideas and potential entry points of where to get in when [[Price_Action_Analysis | price]] is running against the [[Fundamental_Analysis | fundamentals]].
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| As long as the move counter to the [[Fundamental_Analysis | fundamentals]] has not changed the overall [[Fundamental_Analysis | fundamentals]] and is just short term [[Sentiment_Analysis | sentiment]] or [[Sentiment_Analysis#Profit_Taking | profit taking]] move then the trade in the direction of the overall [[Fundamental_Analysis | fundamentals]] is still valid.
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| This style of [[trading]] takes a lot of [[Trading_psychology#Conviction_in_your_Trading | conviction]] to hold against the current market move. [[Institutional_and_Retail_Traders | Traders]] will need to have a lot of patience to wait for the right moment to enter.
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| =='''Positioning Yourself with Medium Term Sentiment'''==
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| Positioning yourself with medium-term [[Sentiment_Analysis | sentiment]] is basically using any reason that we could have to hold a position over a period of one to a few weeks. A classic example of this is when we have an [[Economic_data_releases | upcoming event]] that the market is hotly debating and really [[Trading_psychology | excited]] about.
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| If we imagine that there has been an [[Trading_Tools#Research_Articles | article]] written by a respected [[Federal_Reserve | FED]] watcher that indicates that the [[Federal_Reserve | FED]] may be about to cut [[Monetary_Policy_Tools#Interest_Rates | interest rates]] at their next meeting and the reason he has given makes sense and matches up with the recent [[Economic_data_releases | data]] pretty well. If the market has taken this seriously it will very quickly appear as a headline in most of the major [[Trading_Tools#News_Feeds | news feeds]] and will gain traction as a market moving story.
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| In cases like this what will tend to happen is that the [[currency]] will move in line with what the [[Federal_Reserve | FED]] watcher said right up until the next meeting as outlined in the [[Trading_Tools#Research_Articles | article]]. The caveat is that the market must [[Speculating | believe]] this information and the more traction the story gets in the [[Economic_data_releases | news]] the more likely that the market is to trade it.
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| This is just a simple example but there are many other things that can sway short and medium-term [[Sentiment_Analysis | sentiment]] in the [[Forex]] market. This can be anything from a global financial crisis, a military conflict between major nations causing [[Safe_Haven_Flows | safe haven flows]], to something like a set of [[Economic_data_releases | data points]] causing economists to downgrade their assessment of an economy and calling for the [[Central_banks | central bank]] to act. The point is that we have some very solid reasons that the rest of the market is also paying attention to.
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| Remember, in order for us to make money on our trades we need the [[Price_Action_Analysis | price]] to move in our direction after we have entered and this requires the rest of the markets to be on board with that trade. We don’t want to be the only person looking at a piece of information and doing so will not give us an [[Having_an_Edge_in_your_Trading | edge]]. We need the large players to be in the same trade so that we can take advantage of them pushing [[Price_Action_Analysis | price]] in our direction.
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| A good way to get trade ideas for medium-term [[Sentiment_Analysis | sentiment]] is following the [[Trading_Tools#News_Feeds | news feeds]] and looking out for trade alerts from major investment banks, [[Forex_broker | brokers]], or analysts because they almost always trade medium term [[Sentiment_Analysis | sentiment]]. This type of [[trading]] allows plenty of time for analysis and trade entry but does require larger stop losses than for [[Trader_Types#Day_Traders | day trading]] which could potentially be 100% or greater of the [[Technical_Analysis#Average_Daily_Range | average daily range]] for the pair. At the same time, it can be a much less stressful way of [[trading]] that stops you from getting sucked into the intraday noise associated with [[Trader_Types#Scalpers | scalping]] or short term [[trading]].
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| [[Trading]] medium term moves requires a lot of discipline because if you are going to be sitting at your desk anyways then this has the potential of getting in the way of you objectively monitoring the overall picture and could potentially impact your [[Trading_psychology#Potential_and_Performance | performance]]. It’s worth thinking this through before trying to integrate medium term [[Sentiment_Analysis | sentiment]] into your regular [[trading]].
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| As you have probably guessed, this type of strategy does not require too much [[Technical_Analysis | technical analysis]] for your entries, stops, and targets as these can all be based on bigger picture items that we will look at next.
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| =='''Carry Trading'''==
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| There are other reasons to trade a longer term approach and one of them is for the carry [[Monetary_Policy_Tools#Interest_Rates | interest]] that you will receive for holding a certain [[currency]] pair in a certain direction.
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| Carry trading is a very interesting proposition because it gives two incomes from one position in the market. The first is the [[Monetary_Policy_Tools#Interest_Rates | interest]] paid to you for holding the position and the second is the capital appreciation you get when the market moves in your favour.
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| If you buy a [[currency]] of a country with a high [[Monetary_Policy_Tools#Interest_Rates | interest rate]] against a [[currency]] from a country with a low [[Monetary_Policy_Tools#Interest_Rates | interest rate]] then you will effectively earn the difference between the [[Monetary_Policy_Tools#Interest_Rates | interest rates]] from each country. The opposite is true if you sell a higher interest [[currency]] against a low [[The_Yield_Curve | yielding]] [[currency]] then you will have to pay the difference each day at rollover.
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| To simplify this further, imagine that you took a loan from a bank that charges you an [[Monetary_Policy_Tools#Interest_Rates | interest rate]] of 2% and then deposited that money into a bank that will pay you a higher [[Monetary_Policy_Tools#Interest_Rates | interest rate]] of 5%. The difference is 3% and that is what you can keep as profit in this example.
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| Another great thing about carry trading is that lots of other [[Institutional_and_Retail_Traders | traders]] have the same idea. If you can get in at the [[Best_and_Worst_Times_to_Trade | right time]] it can become a low [[risk]] trade. Other [[Institutional_and_Retail_Traders | traders]] and institutions will want to get in and as a result drive [[Price_Action_Analysis | price]] in your favour with each new [[Institutional_and_Retail_Traders | trader]] jumping in on carry trade positions.
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| Carry trades should be approached over a period of months and it is also worth splitting your position into 3-5 pieces and [[Having_an_Edge_in_your_Trading | planning]] your entries based on where the [[Price_Action_Analysis | price]] may go over those coming weeks or months. Splitting positions will take the pressure off trying to pinpoint an entry in such a long term position.
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| [[Currency]][[Price_Action_Analysis | prices]] can be volatile so instead of [[Speculating | viewing]] these [[Price_Action_Analysis | price]] swings with [[Trading_psychology | fear]] you need to train your brain to [[Speculating | view]] them as exciting opportunities. So you can get in at the market, receive some interest, and also [[Having_an_Edge_in_your_Trading | plan]] where you will get in again if the [[Price_Action_Analysis | price]] moves in your favour or against you in the short term.
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| Exiting the carry trade can be the trickiest part because we are not sure when the move will end. The reality is that carry trades can literally play out over years until something major shifts in the underlying [[Fundamental_Analysis | fundamentals]] and causes a sharp unwind of those positions. [[Institutional_and_Retail_Traders | Traders]] hate [[Trading_psychology | pain]] and losses so anything they consider to be a [[Trading_psychology | concern]] they will react to. However, these episodes can also be [[Speculating | viewed]] as an opportunity because [[Institutional_and_Retail_Traders | traders]] almost always overreact to good news and bad news alike.
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| When you see the [[Price_Action_Analysis | price]] hit all-time highs be cautious and when you see [[Price_Action_Analysis | prices]] plummeting despite nothing really changing [[Fundamental_Analysis | fundamentally]] you should be figuring out how to take advantage of this opportunity and get in at a better [[Price_Action_Analysis | price]].
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| Generally speaking, splitting your trade over the course of a quarter or even a year can be a good way to [[Best_and_Worst_Times_to_Trade | time your entries and exits]]. There is nothing wrong with [[Having_an_Edge_in_your_Trading | planning]] your year around a single trade and waiting patiently for [[Price_Action_Analysis | prices]] to give you an opportunity to build your position. This is strictly [[Trader_Types#Position_Traders | position trading]] and is almost impossible to conduct if you are also [[Trader_Types#Day_Traders | day trading]] at the same time. The day-to-day noise going on in the market might just be too much of a distraction.
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| If you are a [[Trader_Types#Day_Traders | day trader]] and do want to carry trade also then simply do it on a separate [[The_Best_and_Most_Popular_Forex_Platforms_for_Demo | account]] from the one that you are [[Trader_Types#Day_Traders | day trading]] in and that you do not even open during the day.
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| You can see the current [[Monetary_Policy_Tools#Interest_Rates | interest rates]] that each [[Central_banks | central bank]] currently offers by using the internet resources that have already been provided or doing a quick internet search.
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| Let’s take a look at how the [[Price_Action_Analysis | price]] can move in a carry trade and how you can [[Having_an_Edge_in_your_Trading | plan]] your positions to take advantage of these moves.
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| We are going to take a look at one of the most famous carry trades in recent years in that of the GBPJPY pair. This carry trade lasted roughly from the beginning of 2000 all the way through to the global financial crisis that kicked off in mid-2007. If that crisis hadn’t happened the trade would have continued on and on until the [[Monetary_Policy_Tools#Interest_Rates | interest rate]] differential changed.
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| https://i.imgur.com/tQlR0a6.jpg
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| You can see on the [[Trading_Tools#Charting_Software | chart]] above that we have marked with red vertical lines where the trade started and finished on the monthly [[Trading_Tools#Charting_Software | chart]] as it continued to climb higher year after year.
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| At the time the UK had [[Monetary_Policy_Tools#Interest_Rates | interest rates]] between 3.5% and 5.75% during this time period while in Japan the [[Monetary_Policy_Tools#Interest_Rates | interest rates]] were between 0% and 0.50% during the same period of time. This meant that no matter what happened investors would gain at least a positive swap of at least 3% and sometimes as much as 5.75% per year by holding this pair long.
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| Carry [[Institutional_and_Retail_Traders | traders]] know that many other [[Institutional_and_Retail_Traders | traders]] and investment funds love this kind of trade and the very fact that this type of trade attracts more buying than selling they know that there is an extremely high probability of the [[Price_Action_Analysis | price]] moving higher over the long run too which means their trade goes up in value on top of the really nice [[Monetary_Policy_Tools#Interest_Rates | interest rate]] swap.
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| The rates were so low in Japan because they had been going through at least a decade or more of crippling [[Economic_Cycles#Inflation_and_Deflation | deflation]] while the UK had a vibrant economy with positive prospects. This set the stage for this popular trade to buy and hold the GBPJPY which rallied over 9,000 pips in 7 years as more and more [[Institutional_and_Retail_Traders | traders]] and investment funds piled into the trade to seek a nice positive swap and the capital appreciation from the [[Price_Action_Analysis | price]] going up.
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| There were of course large [[Retracements | pullbacks]] along the way but as long as the [[Sentiment_Analysis#Central_Bank_Policy_Divergence | central bank divergence]] held then the trade would always come back until the financial crisis hit which changed the overall big picture for the two currencies.
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| One of the cardinal [[Trading_Rules_to_Live_By | rules]] with a carry trade is that you absolutely do not use leverage because if there is a large [[Retracements | pullback]] you could very easily wipe out your [[The_Best_and_Most_Popular_Forex_Platforms_for_Demo | trading account]] on a trade that was still good.
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| =='''How to Tune Back into Trading'''== | | =='''[[How to Tune Back into Trading]]'''== |
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| As [[Institutional_and_Retail_Traders | traders]], our job is to constantly be tuned into the markets and understand what is going on and how to make a profit from it every single day. This is a simple case of remaining within the flow of information, but this [[Developing_your_Trading_Process | process]] can become very tiring and mentally exhausting over time. Taking time to remove your mind from this flow allows relaxation and recovery which can re-energize you for the months ahead.
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| Coming back from a break you should be eager to return to your desk and get back into that flow of information which allows you to earn your pips effectively. This section is designed to explain exactly how to tune back into the market so that you are fully prepared for [[trading]] and to ensure that you are not missing anything that may have changed during your time off.
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| How exactly do you tune back into the markets after time away from [[trading]]?
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| '''Research:'''
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| The key is to [[Trading_Routine#Knowledge_Phase | research]] and read all of your preferred news sources with the goal of making sure you fully understand what has been going on and what the current tone of the market is. To do this you follow a very simple [[Having_an_Edge_in_your_Trading | plan]] which is laid out in this section:
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| When returning to your desk you should load up your saved bookmarks of financial news sites and spend plenty of time reading through the posted material. So the first step is to open up your news sources and start reading.
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| The best free sites are below for your reference and it is strongly recommend that you bookmark each one for future reference. There are also premium sites that you can use that are good which include Newsquawk, MNI, and Reuters Eikon.
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| These are the sites that you should read every day as part of your normal [[Trading_Routine | trading routine]]:
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| * http://www.forexlive.com/
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| * http://www.bloomberg.com/news/currencies/
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| * http://www.forexfactory.com/calendar.php
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| What are the exact steps you should take when trying to catch up with what has been going on?
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| '''Step 1:'''
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| The first step is to read the main [[Trading_Tools#News_Feeds | feeds]] of each site for all of the highlights that stand out. For example, all of these sites offer a fantastic ‘front page’ where you can check out all of the recent activity and [[Economic_data_releases | news]] that is currently impacting the markets.
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| One of the best parts is that they also offer analysis and [[Speculating | opinions]] about each event so that you can start to build a picture in your mind of what seems to be going on across the market rather than trying to [[Economic_data_releases | figure]] out if one [[Trading_Tools#Research_Articles | article]] is more important than another. We are looking for a general theme that ‘everyone’ seems to be talking about.
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| '''Step 2:'''
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| Once you have read through the headlines you will then click and read each [[Trading_Tools#Research_Articles | article]] in full that stands out so that you can get a real flavour of what is being said and how it has been moving the markets. This allows you to determine what is important and what is to be ignored. This might take a day or two to tune your brain back into the market but that is completely fine and it will be well worth your time.
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| '''Step 3:'''
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| You will now have several currencies that stand out to you and that you can [[Trading_psychology#10._Regaining_Focus | focus]] on heading into your first day back at [[trading]]. The final step is to make sure that you read any new [[Trading_Tools#Research_Articles | articles]] or [[Economic_data_releases | news points]] that are released between now and your first trade to make sure that the themes are intact and that you are tuned in correctly.
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| If you have [[Institutional_and_Retail_Traders | traders]] around you that trade in the same way it would be good to chat them up to see what the main things that they have been [[Trading_psychology#10._Regaining_Focus | focussing]] on while you were away from [[trading]].
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| | In this Wiki, we will take a look at How to Tune Back into Trading and how you can use this to better perform in your trading when you have had time away from trading. |
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| '''Conclusion:'''
| | * [[How to Tune Back into Trading]] |
| | * [[How_to_Tune_Back_into_Trading#Research | Research]] |
| | * [[How_to_Tune_Back_into_Trading#Steps_to_Tune_Back_In | Steps to Tune Back In]] |
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| As you can see the [[Developing_your_Trading_Process | process]] of tuning back into the markets is relatively simple and although you could spend significant amounts of money on [[Trading_Tools#News_Feeds | premium feed]] there is a lot of information out there for free. The only thing that the [[Trading_Tools#News_Feeds | premium feeds]] do is deliver the information faster which is not necessary when you are tuning back into the markets.
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| By replicating this [[Developing_your_Trading_Process | process]] you will be fully prepared and ready to start making some pips.
| | You can access the main Wiki for [[How to Tune Back into Trading]] [[How to Tune Back into Trading | HERE]]. |
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Utilizing Fundamental and Sentiment based trading strategies in the Forex market is not typically how retail traders start out their trading career. However, many retail traders who do discover these types of strategies will tell you that this is when they had their "Breakthrough" from being an "inconsistent breakeven trader" to becoming a "consistently profitable trader." We developed this Wiki with the hope that more of our fellow retail traders will have their "Breakthrough".
This Wiki is for informational purposes only. Any financial gain or loss from utilizing this information is at the discretion of the person using it. We are not responsible for any outcome you have from using this information.
Before diving into this Wiki, it is important that you have a good grasp of Fundamental Analysis, Sentiment Analysis and Central banks because many of the strategies and ideas presented here assume that you are aware of these concepts because they work together. Please refer to those very important Wikis if you have not already.
This Wiki is a part of our Essential Forex Trading Guide. Be sure to check that out HERE.
Fundamental and Sentiment Trading Strategies
Let’s now have a look at some examples of strategies that fundamental and sentiment traders use to trade the markets. Specifically, we will show you how you can get to grips with these strategies, learn how to apply them and figure out the ones that fit your personality best.
As with the entire principle behind all our Wikis, our goal is not to spoon-feed you a method that will work 10% of the time that you can blindly trade. This is because as much as that would be lovely that is not how the markets work. What will make you a skilled trader is knowing when to apply a certain strategy and when to stay out of the market. Being in or out of the market should be based on the prevailing sentiment and market conditions which can only be developed through practice and experience trading the markets in real-time.
It’s very important to set your expectations correctly because your trading skills will improve over time with dedicated practice. You should not expect to read this Wiki and be managing millions a few weeks later. It simply does not work like this because your skills will develop over months and years rather than days and weeks... Sorry, but it's the truth. This is no different than any other profession that requires advanced skills. However, by learning successful strategies that are proven you will shorten the learning curve substantially and reduce your development to just the time it takes to practice what you have learned in live market situations.
It’s important to understand that your strategy is not the major thing that will make your trading business a success or failure. The absolute best way for you to learn the process of finding trades and identifying the best currencies will be trading the current session by following along with the news feeds and information sources we have discussed in previous Wikis such as the Trading Tools Wiki. If it was as easy as blindly following a mechanical strategy then 95% of retail traders would be profitable instead of the opposite reality that 95% of retail traders lose money.
Note: All strategies are employed only after the analysis phase is complete. Don’t think that because you have a system you can cut out any of the 4 phases of the trading routine because they are relevant no matter how you execute your trades or what you base your trades on.
Trading Risk Events can be a very profitable form of trading but you need to know how to do it correctly. In the following Wiki, we are going to explore How to Trade Risk Events including:
You can access the main Wiki on How to Trade Risk Events HERE.
Understanding Central banks and how they conduct themselves in the Forex market is one of the most important concepts that a Forex trader needs to know about for effective trading. In this Wiki, we will explore How to Trade with Central Banks Including:
How to Trade with Central Banks
How to Trade Central Bank Statements
You can access the main Wiki on How to Trade with Central Banks HERE.
In the following Wiki, we will take a look at How to Trade Upcoming Economic Figures and how you might apply this concept to your trading.
You can access the main Wiki on How to Trade Upcoming Economic Figures HERE.
The previous session almost always will have an impact on the current trading session. For this reason, it is useful to know how the previous session will impact the current session and how you can go about trading it. This is what the following Wiki will focus on.
You can access the main Wiki for How to Trade the Previous Session HERE.
In the following 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.
You can access the main Wiki for Trading Surprise Data and News HERE.
News Feeds can provide many trading opportunities if traders know how to capitalize on them properly. In this Wiki, we will cover how to trade with the news feed so you can understand how to add this potentially profitable strategy to your trading toolkit.
You can access the main Wiki for Trading with the News Feed HERE.
Trading Fundamental Pullbacks is a simple strategy that involves patience to wait for the medium term sentiment to bring prices back to a place where it makes sense for large investors to see a bargain and want to get back in or add to an existing position. In the following Wiki, we will explore:
You can access the main Wiki for Trading Fundamental Pullbacks HERE.
In this Wiki, we will take a look at Positioning Yourself with Medium Term Sentiment and how you can apply that to your trading.
You can access the main with on Positioning Yourself with Medium Term Sentiment HERE.
Carry Trading is a time-tested strategy that has been used by large institutions for decades. In this Wiki, we will take a look at what Carry trading is and how you can apply this to your own trading efforts.
You can access the main with on Carry Trading HERE.
Trading Strategy Summary
Before you place any trade you need to have these questions answered and fully understood.
What is the cause of the move?
- Use the tools to determine what caused the move (Bloomberg, Newsquawk, ForexFacorty, etc.). The real time news feed is usually the best for short term trading.
What are the Fundamentals?
What is the Fair Value of the currency?
- Determine the last extreme high or low that happened while the current fundamentals have been in play.
- The fair value is the previous extreme high ( uptrend) or low ( down trend) as long as the fundamentals have not changed.
What is a good entry price?
- You compare where the current price is to where the fair value price is. If there is a large enough difference between the prices then it could be a good potential entry point.
- You can use the trading tools combined with trade setups with the technical strategies as well.
What is the current sentiment?
- After you have answered all the questions above it will be easy to determine what the short term sentiment is and whether it is in line with the fundamentals or not.
Keys to Successfully Executing Trading Strategies
Conviction:
Knowledge:
- Always increase your understanding of the markets because knowledge leads to confidence which leads to conviction.
Fundamentals and Sentiment:
Tune In:
Do Not Overcomplicate Trading:
- Trading is a simple process that you get better at over time with practice and experience.
In this Wiki, we will take a look at How to Tune Back into Trading and how you can use this to better perform in your trading when you have had time away from trading.
You can access the main Wiki for How to Tune Back into Trading HERE.
Related Wikis
Readers of Fundamental and Sentiment Trading Strategies also viewed:
