As we have previously stressed, it is a serious newbie mistake to attempt to play the news without some really good experience and rationale behind what you are doing. Also you need to have a fixed money management system in place to prevent fear and greed from driving the trade, rather than a strict calculated criteria.
Anyone who has been in this business very long can tell you stories of monster trades that fell into the "emotional" category. I have entered trades that I watched make a boatload of money from the news, only to "hold on too long" and watch my profit dissolve in a reversal, or worse yet, become a loser that eats away at my capital.
I have also had trades where I just watched it lose. Mesmerized by how fast the market was moving, and "knowing" it would turn around just as fast and make me profitable. But then it never did. I ended up stopping the bleeding only to sit there stunned and wonder what I had done to my account.
The trader who does such foolish things is destined for failure, unless he has an endless supply of money, or at least some very deep pockets.
Know in advance what you are prepared to lose, on EVERY trade, then STICK TO IT. No matter how it feels. if you play the Forex with your emotions, You Will Lose. Period.
And this is why trading the news is so dangerous for newbies. It has an emotional appeal. The allure and opportunity to get rich quick. But it usually ends up the other way around.
OK. So I mentioned a couple of posts ago that I use the news differently from most. Here's how. Rather than entering a trade around the news, I will be in a few days, or at least several hours, in advance. By the time the news comes, I am in the profit. Then I simply sit aside dispassionately, and wait for the data. If it is in my favor, I will let the trade run and follow it with a trailing stop. Often news that really moves the market, will move it for hours afterward. So I have to be sure to give it enough room to allow for the immediate volatility, than just watch the profits build up.
If the news moves against me, I 'll just go ahead and exit the trade, (generally before it hits my extra wide stop), because I know that the price action will likely continue against me for the rest of the day...and perhaps even into the next few sessions.
Preservation of Capital...that is the name of the game, and the real Holy Grail of Forex. More on that tomorrow.
Drop me a line and let me know if these "news" lessons were helpful.
bill@thefxtradingmasters.com
Be sure to check out our offer on the website:
www.thefxtradingmasters.com
Until next time...Happy Trading!
Bill
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