Fade Away News Trade Forex Trading Strategy

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Fade Away News Trade Forex Trading Strategy

News trading is one of the most tricky trades to master, especially for us retail traders. Even prop and institutional traders have all the tools and tricks up their sleeves, but they still get it wrong. They have research teams, high-end gizmos and Bloomberg trading platforms, plus all the brilliant quantitative minds in their teams to help them predict the news. On top of that, they have the best advantage with them, their fellow institutional traders. They have what they call the whisper number. It is basically a figure that could either have leaked out prior to the actual news release, or a figure that most of their quantitative analysis people agree on. So, they trade the information that they have prior to the news, then use the volatility that occurs during the news release to get out of the position in profit.

Us retail traders, we just don’t have that advantage. What most retail guys do is to straddle the price seconds prior to the news release. I used to do that. However, due to the presence of algorithmic traders, the actual spreads are often unknown. This is very bad for straddle trades. This is because you don’t know how wide you should be straddling, until the actual news release, and you will only know if your stop loss gets hit. You see, seconds prior to the news release, these algorithmic traders pull out their pending orders. This causes the market to dry up literally in a blink of an eye, only then can the real spread be known, but only by brokers and those whose stop loss got hit in a split second. I was one of those. The spread widened by 10 pips and my pending order and stop loss got hit virtually at the same time.

Now, this is not a rant strategy. This is an alternative strategy to trade the news, or more of around the news. As a disclaimer, this strategy is not that easy, and it is not always right, but it is better than just straddling the news, I think.

Trading on the actual news release is pretty hard due to the drying up of the market. What we could do however is trade after the news. This way, we have all the information we need. We’ve got the news release and more. And we trade against the direction of the news, also known as fading the news. This is more of a counter-intuitive method, but I think there is logic in it.

Usually, traders trade with the direction of the news after a news release. However, I think what the news only does is that it just hastens price to reach either support or resistance, a very strong support or resistance that even fundamental news releases can’t breakthrough. The end of the price thrust is the actual support or resistance. At those levels, there are large number of ready buyers and sellers. At those levels, those who pushed the price during the news release, think it is too much of a price swing for them to continue pushing it further. So, this is an interesting level to watch. It is either that price would create a new range around this level, or has broken through and would start to trend, or as what usually happens when price reaches support or resistance, it bounces off. With this strategy, we will be betting that it would bounce off.

The Setup: Fade Away News Trade Strategy

With this strategy, we would be looking primarily at the 5-minute chart. Yes, news trading is ideally traded on the 1-minute chart, but that is when you are trading the actual news release. What we are trading is the reversal. On the 1-minute chart, there will be candles that would show short retracements before price continues the direction of the news. However, on the 5-minute chart, there will be less noise. It is not perfect, but it is better. Some traders use the 15-minute chart for fading the news, but I find it often a little too late.

We will also be trading on a naked chart. This is because I think no indicator could justifiably quantify the big moves caused by news trades. It would usually be skewed. Instead, we will judge our entries purely on candlesticks and price rejection.

What we will be looking for is the first reversal candle on the 5-minute chart. It should ideally have long wicks on the direction of the news to signify price rejection. Then, as the candle closes, we set our pending stop orders on the high or low, depending on the direction of our trade and aim for where price took off from. This is because if price reverses on news trades, instead of rallying, it usually closes out the gap it made from its start to its peak.

Sell Entry:

  • News release data should agree with the direction of the price thrust due to the news release
  • Price should spike up
  • On the 5-minute chart, wait for the first bearish candle, preferably with long wicks on top
  • At the close of the candle, set a pending sell stop entry order at the low of the candle

Stop Loss: Set the stop loss a few pips above the high of the candle

Take Profit: Set the take profit target at the open of the news spike candle

fade away news trade forex trading strategy 02

Buy Entry:

  • News release data should agree with the direction of the price thrust due to the news release
  • Price should spike down
  • On the 5-minute chart, wait for the first bullish candle, preferably with long wicks at the bottom
  • At the close of the candle, set a pending buy stop entry order at the high of the candle

Stop Loss: Set the stop loss a few pips below the low of the candle

Take Profit: Set the take profit target at the open of the news spike candle

fade away news trade forex trading strategy 02

Conclusion

This is a basic news fade strategy, one which is commonly used by traders. However, news trading in itself is very difficult. On top of this, fading the news even more difficult. But again, it is better than just to mindlessly straddle the news.

This strategy works well in news releases of markets that are not that big, like the USD, EUR and GBP. This is because, in these markets, traders who push price do run out still, so reversals are likely to happen. This usually works on the Asian markets, although I’ve also seen this occur at times with the GBP.

It is also important to trail the stop loss as sometimes price don’t fully close out the distance it travelled from the news spike.

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2 COMMENTS

  1. Hi there,
    I don’t know if I am retarded but the download link only has a naked template in the folder?
    Can you please provide the entire indicator file(s)?
    I have been applying this strategy manually for years and this would really make my life easier (I hope).

    Thanks 🙂

    • Hi Jay,

      This strategy only came with the TPL file. There is no custom indicator, we are using the indicators in the Metatrader. So everything are set! 🙂

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