Chapter 7 – Basic Trading Methods

For example, if the upcoming ISM Manufacturing Index has a forecasted number of 52.5, and our standard deviation is 3.0. The actual release came out as 50.3… what is our course of action? The actual deviation is 2.2, about 0.8 points away from our tradable deviation, but it’s close enough… so you enter a short trade. But Mr. Big Shot at ABC Hedge Fund may also be looking at release of 50.3, which still means expansion in the sector (above 50 means expansion, below 50 means contraction), and decided to go on a long trade. This could be devastating for your account. Remember, the deviations that we trade are “safe” deviations, they have been proven to work in the past and that is why we trade them.

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It’s time to lay down some ground rules before getting into the actual trading methods. Remember that the following are extremely important and you should always keep in mind when trading the news, no matter what kind of news releases or how huge the deviations are.

  1. It doesn’t matter whether or not the market reacts the way you expect it to react. You have to remember that nothing is absolute in trading, especially with Forex.
  2. We do not form an opinion before the news release; we will wait for news release to come out, and then trade according to plan.
  3. We are only looking for the probability of the combined reaction of the market in the short term, within the first 30 minutes up to 2 hours immediately after the news release.
  4. We must be flexible in trading. If market sentiment, technical analysis, and the news release numbers all point to one direction but the market still react in a completely opposite direction, we must also act accordingly. It is most likely that we’ve missed some underlying reason to this reaction, and we must respect the market.
  5. We only concentrate on the news that has most impact to the market with most predictable reaction.
  6. We always assume that the market will overreact to the news.
  7. Study the reaction of the market after news release. You will see the “underlying market” sentiment.

Ok, it’s time to talk about the actual fundamental news trading methods. Remember to always prepare a plan by writing them down on a piece of paper; do not get into the market unprepared.

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It is important that you get a news wire service, such as tradethenews.com, Reuter, or Bloomberg if you want to trade fundamental news. Do not use those free news wire services or news feed from your broker. Every second counts in news trading, you could make up 10 times the money you pay for the news feed service with just one good trade.

 

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About Kelvin Ching

I'm a professional Forex trader and I have been trading for over 7 years. I was a series 3 broker and a registered CTA with the NFA, the main regulatory agency in the United States, and I have been involved at the highest levels in commodity trading. I also have a background in Information Technology, graphics design, and programming... I'm the co-founder of CurrencyNewsTrading.com, a site dedicated to fundamental analysis and news trading.

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