Sunday, February 25, 2018

Forex Tips: Handling News with an Open Position

Last blog post, we discuss on trading Forex with the news. This blog post will discuss how to handle an open position when there is a major news that is coming. Before we carry on, I would like to make clear that there are some forex strategies wouldn’t be that ideal for this plan . This blog post is meant to show you how important to have an idea what to do with a forex open position when there is a major news going to announce.
Do bear in mind that major news are relevant here. We also care about the announcements that affect the currency pair that you are trading then. For example, a Greece’s debt issue wouldn’t affect my USD/JPY open position.

Does it matter? I mean we learn the importance of having a stop loss and take profit levels and and apply it. We have money management. So what do we suppose to be afraid of?
Major news affect the forex market a lot. I do really mean A LOT. Here are some examples that show how these major news announcements can create more risk than usual for you when you are trading forex market.

Example 1: The position is not profitable anymore.
Generally, we suggest to leave the position on. However, if the trade is 90% on the way to hit stop loss, close the trade. The reason is that when the news is announce, it could create a gap. If the gap go beyond the stop loss, resulting in losing more than what we can risk.
Otherwise, leave the trade on, and see what might happened.

Example 2: Your Open Position is even.
In this case, just leave the position as it is. However, there are a few things you should consider.
One, if you think there is a chance the news could gap beyond your stop loss. Close the trade, since you didn’t make a loss or profit. This is extremely rare, and usually apply by traders whom trade short term.
Two, if the original pattern does not seems to valid anymore, close the trade. Because the original reason why you make the trade does not exist, it doesn’t make sense at all to carry on.

Example 3: Your Open Position is profitable
Let’s revise the other two examples we talk about just now.
The first example, your trade is most likely going to hit stop loss, but you might get lucky if the news goes in your favor and win if you stay on.
The second example is extremely rare, but staying on still pose some benefits.
Now, on the third example…
Let’s say your trade is 50% to your target. Or maybe farther…
As we all know, news is totally unpredictable… As for now, you are the winner. But after the news announcement, the market changed and might hit your stop loss.
Oh bugger…
So, I am suggesting that since there is profit at your opening trade, take it first.
Of course in this example this is very subjective. If you holding 30% profits, I really think you take the profits. If it is just 10% profits. Why not stay on?
Bear in mind the risk to reward ratio. If you are risking a lot just to earn just a bit more, I guess taking the profits sounds logical.
Remember this also, news dismiss forex technical analysis in a lot of case…

Conclusion
Ask yourself questions like “What are the odds that the pair is moving up or down?”
Of course, even with these thoughts helping the forex strategy you have, it is still very grey area that you will have a lot of different ideas. Some of them may even contradict each other.
The simplest way is of course ignore the news after you enter the trade.
However, if you follow those guideline I suggested, I am sure your forex results will improve a lot whenever there is a major news announcement coming your way.

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