Forex Trading into the News: the Great Unknown

Forex Trading into the News: the Great Unknown

News trading can be divided into three phases. There are before the news release (first phase), at the news release (second phase) and after the news release (third phase). This article look in more detail at trading at the news release, or trading into the news. As the first phase transitions into the second phase, there may be a period of unusual market calm. Then the market may start becoming volatile. However this is not necessarily the case, and volatility can be expected at any time.

This may be strong volatility, where the market sharply moves back and forth. It can be interesting gauging when the news is released by the way the market is moving. It can be the case that this is pretty obvious: the market will surge in a directional way. However this surge, which can be very brief, can oscillate. That is it can drop down, in the case of a move up. It can do more than this it can exceed the point where it began its release move.

Behind a news trade, as evidenced by chart movement, is the news event. Thus the data can be seen as shaping the move, along with the sheer volume pushed into the market at release.

But there are other factors shaping the move, namely support and resistance embedded in the chart. A news trade is a special case in some ways, as it can be expected that support and resistance, while they may play a factor on phase one and three, may not be so important in phase two. Except for one thing: that a news trade creates its own support or resistance by its starting point, at the time of release and may respect a support or resistance when it pauses on its move, or push off it to reverse. But as the news trade may power though support and resistance, which may have been an issue with a trade in normal market conditions, it is not known where it may pause: trading into the news has an element of being the great unknown in trading.

It can be said though that the starting point for a news trade, at release, may itself be an area of 'established' support or resistance, particularly if the market has been pricing in a move, with trends happening in the longer run up to the news event. This kind of move may then do very little at release. So some sense of 'known' can be added to a priced in news trade move, as the market has done what it can to stabilise the move at release into the normal term of market condition events. But of course this may not be so interesting, in terms of a trade.

The (perhaps) more interesting is one which has a clear direction, shaped by these factors aligning: the surge of money flow and the news surprise

These moves can pause and then continue in a way which creates clear blue water between the starting point and end point, in effect rescaling the market to a new support/resistance level. But it must be noted that even if it seems all the ducks are thus in a row, the market can produce pricing behavior which results in an 'unexpected' outcome (for example oscillating). The pull of the start point can be seen as something the news trade needs strongly to overcome, else its normal behavior is to return to it (or stay near it). This can be seen as perhaps not unexpected, as a news trade is a very short term event in longer term market activity, and why should it change things. Except for the fact it can.