Timing a trade can always be difficult and watching for significant news that may affect your trade before it occurs can be doubly so. However, watching the news for guidance or trading opportunities can take your trading to an entirely new level. Often the key is to wait for the most important or significant news to establish the likely trend over the near term. I look for the major news releases that have caused movement in the most recent period’s announcements. The second thing I do when I am trading the news is to identify the pair that is most likely to be affected by the news.
For example, we are all familiar with the precarious situation that the USD has been in over the last 12 months. Most fundamental factors like trade and inflation, point to depreciation in the USD and yet it has been able to keep its head above water through extended interest rate hikes. Therefore, whenever an announcement related to trade, inflation or interest rates is coming, I get my trade ready on pairs that are likely to be affected and may be near a tipping point. This Thursday we have just such an opportunity when U.S. trade numbers are released.
Of course my economist friends will tell me it is unconventional to concentrate on a single announcement at a time or only a component of the current account like trade but that is what a swing trader in the Forex does. When I am looking for a news-based trade involving the USD, I will carefully pick the pairs with the most attractive opportunity. Right now, I am watching the USD/CAD pair. These currencies have a very interesting relationship and as one of our largest trading partners they are the source of many raw materials and energy commodities. I like this pair because we are at a nice tipping point. A supportive price floor has been established near former resistance of 1.1240. A break below this level could lead to a significant sell off as portfolios are adjusted and stops are hit. A bounce here could also lead to a large move up. I think a downside move towards USD weakness is more likely at this point but I won’t take my trade until the market begins to move following the announcement.
Watch the announcement on Thursday at 8:30AM Eastern and see how traders begin moving the market. Essentially we are looking to jump in with the momentum of the market in general. With plenty of room to trend either direction we could see some great profits. Use the news to find trading opportunities and identify risk and you will be putting the unknown to work for you.
Source: Prophet.net
John Jagerson is a writer about and active trader in the Forex. His book, Profiting With Forex, published by McGraw Hill, will be released this July. This author also develops Forex education courses for INVESTools.com.