Trade News Spikes Like A Boss
Get a free test version of our best news spike trading EA at the end of this article.
Whats a news spike?
After years of trading high impacting news releases in the forex and futures markets, by using expensive high end news feeds and specialty software to trade market “spikes” (fast move up or down), I began to see a particular pattern emerge within these spikes. Not only for news releases but for MANY other reasons as well. Some of these reasons can be: Break of Support or Resistance areas, broken Trend Line, Price breaking through Big Round Numbers, Break of Popular Moving Averages, natural disasters, breaking news, etc.
Every time this happens traders and automated trading robots enter the market (in milliseconds) for quick profits. This causes the markets to spike. Sometimes you might see these moves and join in. Then what happens to this move, the breakout? It turns right around and heads back to your stop loss or point of origin.
The reason for the spike was the reaction from the robots and the very fast traders, but what was the reason for the spike to collapse and head right back down to your stop loss? The answer is simple: Profit taking -or- exiting of positions by the traders and robots that entered into the market before you did. I’ll explain.
Let’s say the market spiked up after the news, broken trend line, round number, etc.. Well the market spiked up because everyone very quickly bought the currency pair with BUY orders. When they went to exit their positions for the quick profits they used an equal amount of SELL orders. This drove the market back down to the origin. I’m telling you that this much of the move is predictable! It happens around-the-clock, a minimum several times a week, per currency pair.
In this article I'm going to focus on one very successful strategy we have developed for trading spikes that you can go out and use right away.
Fade the spike. When the spike happens and you see it stall for just a brief moment, you enter the market with a position trading against the original direction of the spike, Why are we doing this? Well all the traders and algos that are much faster than we could ever be have caused the initial spike. They want to get out of their positions quickly for profit (these are hfts we are talking about here.) They get out of their positions by selling the opposite direction of the initial move. We simply jump in at that time and trail our position with a tight stop-loss.
This system and approach can be traded manually if your sitting in front of your computer during high impact news releases. It can also be done automatically with special, fully automated trading systems like the ones we develop at Cutting Edge Forex for the MetaTrader 4 platform offered at almost every forex broker in the world.
1) Below you see a down spike happening
2) As the spike stalls and reverses Silicon Phoenix attacks with a BUY order.
3) Trailing stop loss is engaged and follows price up into profit
4) Trade is closed by protective and advanced trailing stop loss. This one for a quick, safe, and easy 7 pips.
This can be traded manually if your sitting in front of your computer during high impact news releases. It can also be done automatically with special, fully automated trading systems like the ones we develop at Cutting Edge Forex. Download a FREE test version from our website here. Or from the MQL Markethere.
In future articles we will breakdown news trading even further. It's nothing to be afraid of and can be astonishingly profitable in a short amount of time.