Here Is The Truth
Why This Myth Exist
While browsing forex forums or even some social medias, you might have seen some traders stating warnings about “never trade the news unless you want to blow your account”. Indeed, many traders believe that news trading is blind guessing, erratic spikes and even more scary, unpredictable candles. To be perfectly candid, many economic events can cause quite the movements on the charts. This can be very scary and/or annoying, especially for beginner trader who don’t understand liquidity and the dynamics related to it.
Labeling them as “pure gambling” is just not the truth and it may prevent some traders from seeing the real mechanics behind these explosive movements. In this articles, I will help you understand why news cause such commotions in the markets.
The Myth Some Traders Believe
In the lines of “news events are random, chaotic and manipulated” or even “no system can predict them so trading them is just gambling”
To be fair, many traders experience whipsaws and loses during news. Some people will even push this to the point of saying that “brokers hunt stop losses during news events”
On the surface, it might make alot of sense and make you scared of trading the news. They can really cause big moves and bring on wide spreads or even make some really big candles appear. It looks alot like randomness and chaos.
Why Is This Myth Dangerous For Traders?
That myth can create some problems that can kill your performance long term.
It might make you execute some trades out of emotion.
Let’s say you think that trading during the news is unwinnable, you might:
- Close your trades early.
- Rush entries before the announcements.
- Move or even not get your stoploss in place.
- Over-leverage your trades.
Those are all things you want to avoid.
Some traders actually make a living trading during news. In fact, some traders trade exclusively during news events. It allows them to catch breakouts or post-news trend continuations.
It’s only gambling if you approach it like a gambler and try the odds in hopes that it will pay off.
The Truth
Here is the truth:
News trading is risky, but not random. Economic events follow structured patterns like:
- higher spreads before the actual news.
- A liquidity vacuum during the first few seconds.
- A full reversal can happen when the initial spike becomes a grab for liquidity.
- The volatility drops sharply when the market returns to it’s balance.
The price does not move only because of the numbers.
The markets are made of traders, institutional, spot traders, edge funds and such. They react to very real things like:
- Expectations.
- “Pricing in” behavior.
- The previous trend’s direction.
- The imbalance in liquidity.
- Statistical models.
The institutions themselves don’t manipulate the news, they work by managing their risk.
News trading can only work when you use rules to trade, not your gut feeling.
You might wanna look for systems that look for:
- Clear breakouts.
- Exits the market when the spike is slowing down.
- That will follow the market sentiment.
- Are triggered by continuation setups. I must say that Zero Lag MACD can be an amazing continuation indicator for that matter.
How To Apply It In Your Trading?
First step: Build a system that has an edge on these news. Make sure you backtest it on a big scale number of these news.
Second step: make sure you have a clear and complete trading plan.
Third step: Plan the moments you will be trading these news. It can be a manually practiced algorithm or even an EA that you can schedule to work during these times. Know your news!
Here is a link to a reliable forex calendar: https://www.forexfactory.com/calendar
Forth step: Foreword test your algorithm! This step is key and I can not stress this point more. You want to test it on a demo account first. If you want to create a demo account that will not expire and has great trading conditions, I recommend using Blueberry Markets as a broker. Here is a link to create an account here:
Algorithmic & Quantitative Systems
This is my favorite part. News often will create big volatility moves and guess what, my favorite algorithms will only trade when there is a minimum threshold of volatility. The reason for this is that big moves bring momentum to a trend, whether it’s a reversal, a continuation or a new trend. Trends often will start or regain their strengths with a big volatile candle. Note that the systems that will love volatility the most are often the ones using bigger time frames such as H4 and D1.
As long as you follow the steps to gain a repeatable edge over the market, you will thrive news or no news.
Another good reason why algorithmic systems are working well when there are news is that there is no room for emotions, a well planned algorithm will take care of the spreads checks, the volatility filters, the direction of the prevailing trend and have rules to protect your balance and give you descent opportunities.
Conclusion
News trading is not gambling, trading without a proper system is gambling.
When you understand the structure behind the economic releases, respect volatility rules, use the proper filters and prepare a solid plan with an edge, the chaos becomes not only manageable but an opportunity.
Don’t forget that you can not control the news. You can however control the way you are preparing your system to face them and get a statistical edge that will make you earn some precious pips.
