Breaking News Breaking Trades
News is an important element of trading: it is able to move the market significantly and suddenly and is consequently a key source of volatility. Whilst there are unknown news events (like the shocking Friday the 13th terrorist attacks in Paris), other news is known in advance and can - and should - be factored in your trading.
At TWP we try to avoid holding positions over major business or economic news announcements. The volatility introduced by these news events can easily turn beautiful trading setups and chart structures into an unpredictable mess. In this article I wish to highlight a trade of mine that went from being right on target, to being stopped out due to two news events.
I had recently spotted an expansion setup in Gold to the downside on an eight hour chart. A flat level had been tested several times and finally price broke to the downside. Soon the the move down accelerated and the first profit target was quite close.
Unfortunately I didn’t give the following news announcement enough attention:
I anticipated that any remarks made by Mrs Yellen would probably move the index and interest rate futures, but the impact on Gold would be minimal. Well, think again. Of course the price of Gold reversed and a good trade very quickly started to go against me.
In the following image you see a 5 minute chart of the Gold futures, covering the time of the news announcement. You can easily see, how quickly price turned around and moved to the upside.
The next image shows the different price levels for the Gold futures. I would like to point your attention to the columns “Vol” and “Vol Bars” that show the traded volume at each price level. If you look at the 1073ish prices and then at at the huge bars in the chart, you can imagine how fast the market moved. These futures represent the global market in Gold. And at these levels only two digit contract figures have been traded - which is nothing for a global market like Gold. So you can see how news can move a market quickly and why even well placed stops might just get overrun (slippage) in a fast moving market.
Part of my trade plan is to not a touch position once it’s on: all my exit orders are in place and so I don’t have to tweak around and fear and greed have no opportunity to take hold of me. This was the plan with my Gold trade as well. I was not stopped out and there was still a fair chance that the trade could play out in the end.
Then the second type of news (the unpredictable one) hit - and when the markets opened again on monday after the terrorist attacks on friday Gold moved higher to finally hit my stop.
My personal lesson learned from this trade: with news you should always err on the side of caution - just assume that any news might move a) more markets and b) move those markets stronger than initially anticipated.
The TWP website conveniently has an economic calendar, so there is no excuse to know when to stay well out of the markets: http://www.tradewithprecision.com/economic-calendar
Register for our next live webinars: "Trading Strategy Precision Style"
Date: Tuesday, 24th November 2015, with Hao Sun
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Date: Tuesday, 24th November 2015, with Philipp Pfitzenmaier
Regards,
Philipp Pfitzenmaier
The TWP Team
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