Forex News Trading Strategy

High-impact Forex news trading strategy (also called news volatility straddle) was developed specifically to trade important Forex news with as little risk as possible. It can be used only for influential Forex news releases such as US GDP, non-farm payrolls, or interest rate decisions. Although all currency pairs react to such news, the USD-based currency pairs show the best result due to low spread and high liquidity.

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Features

• Circumvents spread widening and slippage problems.
• Fundamental basis for a trade.
• Simple setup.
• High success rate.
• Important news events are quite rare.
• A broker with low spreads and high-quality trade execution is required.

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How to trade?

1. Choose an important news release that has a high impact on Forex pairs.
2. For EUR/USD, I recommend US GDP, US nonfarm payrolls, US interest rate decisions, eurozone interest rate decisions, and US PCE reports.
3. Open Buy and Sell positions one minute before the scheduled news release. It will help you to protect the trade from slippage and widened spreads.
4. Set stop-loss for both positions to 10-20 standard pips depending on the expected news volatility.
5. Set take-profit for both positions to 5 × SL. It will provide the necessary risk-to-reward ratio.
6. The news volatility will most probably trigger one trade's stop-loss and the other's take-profit.
7. Move the surviving position's stop-loss to breakeven once the paper profit reaches original stop-loss distance.
8. Close any positions left one hour after the news.

If your broker uses "first in, first out" (FIFO) execution model, it is still possible to trade news with this strategy. Place pending orders with entry points at the levels you would set the stop-loss of the original Buy/Sell positions. When one pending order is triggered, the other one should be canceled. This strategy modification is required to use it in MetaTrader 5. Unfortunately, it suffers from additional exposure to widened spreads and slippage.

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Example

The example depicts a trade on USD/CAD @ M30 chart during a joint announcement of the US and Canadian unemployment figures for October at 13:30 UTC on November 6, 2015:

1. The entries are shown with the blue and red arrows pointing right.
2. The blue one is Buy; the red one is Sell.
3. The original stop-loss levels are the red lines above and below the entries.
4. The pink line is the Buy trade's stop-loss after it was moved to breakeven.
5. The take-profit levels are the green lines above and below the entries.
6. The Sell was closed by stop-loss during the first second after release. The exit is marked with the red arrow pointing left.
7. The Buy was closed by time-out an hour after the news. It failed to reach the target level but still earned enough profit to cover the loss on Sell and produce a significant reward. The exit is marked with the blue arrow pointing left.

Warning!

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Discussion

Do you have any suggestions or questions regarding this strategy? You can always discuss Forex News Trading Strategy with the fellow Forex traders on the Trading Systems and Strategies forum.