Education - Articles - How To Trade The News
Common Sense Is Not That Common
Survival Of The [Mentally] Fittest
Always act on what you know to be evidence based on undiluted common sense; although unfortunately, the problem with ‘common sense’ is that it is not that common. Never become slothful and rely solely on the explanation given by others. It is relatively impossible for the average trader to act like an android, trading on facts alone, since to some extent most of us are instinctively emotional beings when faced with making a decision in threatening, or other stressful circumstances; such as at the hard right edge of the chart where price activity is unfolding and you can hear your heart thumping in your head as you eyeball every tick in price movement. We are like this to ensure our survival. However, that life-saving fight or flight modus operandi, will not allow you to survive let alone succeed in the psychologically demanding realm of trading.
Guidelines On How To Trade The News
The following table displays the basic news/market sentiment relationships:
Instead of being psychologically and financially ricocheted by the market during a major news announcement, you should only use the news to a limited advantage by following these guidelines:
- Balance your day trade holdings so that you hold no positions going into the scheduled announcement (except for long-term trade holdings if any).
- Can I use this news story to better my own trading position?
- Make note of market expectations, recent directional conviction (or lack thereof) and prominent reference points (KRAs) for optimum trade location.
- Observe activity after the actual number is released to determine underlying market sentiment (use above reference chart, if necessary).
- Keep an eye on ensuing price activity near recent key reference/pivot levels for acceptance or rejection.
- Identify a fulcrum.
- Use Order Flow and/or Order Flow Divergence for trade execution confirmation.
- If a set up presents the odds in your favour, enter your trade. Position stop loss orders beyond structural KRAs. Exit if conditions arise that contradict market sentiment.
About the Author
Andrew Hall is a Proprietary Trader and Head Trader at iTradePod. Andrew has over 10 years trading and investing experience. He continues to mentor a number of traders, achieving trader excellence in Market Profile® Trading, Order Flow Principles, Value Trading and Auction Market Theory. As an experienced and highly qualified IT Consultant, Algo / Quant Software Developer and Educator he has been awarded various statuses by professional bodies including Chartered Engineer, Fellow Chartered IT Professional and Fellow of the College of Teachers. Follow Andrew on Twitter via @miniDowTrader or email him at Andrew@iTradePod.com.
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