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Sound familiar? Face it, many of us have been there. Many traders who have nursed battle scars from the markets will recognise this as a fatal rookie error – and many seasoned professionals will admit (possibly off the record!) they have been guilty of doing this in their formative years.

Such an emotional rollercoaster would certainly be enough to cause even the meekest trader into a wild frenzy of spitting rage. But this happens all too often. For many new traders who gravitate to intra-day trading, news trading will be remembered as nothing more than a loss-making jaunt into the wilderness where money was thrown away and expectations, thwarted.

In stark contrast, set-and-forget higher time frame traders will typically be already in their positions and will usually regard a news release, at the very most, as an opportunity to manage their current trades. At the very least, they will dismiss news with gay abandon, mindful of the probabilities that they can take advantage of with their set-up.

After all, we trade what we see on the charts and not what we think.

What ostriches can teach us about trading

It may sound ridiculous but when it comes to trading the news on the higher order time frames (daily and weekly chart) with a strategy which has positive reward/risk, it is often better to have your head in the sand after you have pulled the trigger and placed that trade.

 Accept the fact that if you are in a trade that has high profit potential and the news sends the trade in your favour, then you will potentially win far more than you stand to lose than if you were proved “wrong” and news sends the trade against you.

Remember that losing trades are all part and parcel of trading financial markets and you should celebrate them as a necessary “business expense” prior to a string of winners. Trade set-ups are random – so too are both profitable and loss making outcomes.

Big news today? Fret not!

Do we have any way of predicting the news in advance?  We do not. We simply accept and embrace the odds; the worst possible outcome that can happen if the market invalidates our trade set-up (ie: a small loss) versus the worst possible outcome of simply becoming fearful and sabotaging our trading plan by not trading that set-up that goes onto win big without us.

News is simply tameable noise. If we see a valid set-up which conforms to our rules for entry and has a reward to risk profile of 3:1, we simply place the trade with complete disregard for what the news is or who is saying it.

Remember, there is a 50% chance the news release will send the trade in our trade’s direction and a 50% it will not. If the news sends our trade in the desired direction then it will help to perpetuate a trading outcome which has high profit potential. If news sends the trade against us, the subsequent loss is limited to 1% of our trading account.

Case study: NZDUSD (26th February 2014)

The argument in favour of a sell was compelling on the 26th February, when the close of our signal bar (an inverted hammer) gave us a valid entry point to sell.

The following factors supported our “sell bias”:

• Inverted hammer on the daily retesting old, previously broken support at 0.7605 as resistance

• Downtrend with good order, angle and separation of the moving averages (20, 50 200emas)

• Rejection of 0.618 Fibonacci Retracement level (overlapping with horizontal level)

• Reversal pattern on the hourly giving us bearish timeframe correlation

Learn to Trade, News, Putting, Odds, Your Favour, forex, forex training, coach NZDUSD

 

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