Positioning for Profits with News Trades

How to make money in Forex with FXTE NewsTrader.

FXTE NewsTrader is a professionally prepared online publication that publishes key economic data for Forex traders. Every week, it reveals potential market-moving economic events for the following week. The historical track record of the reliability of this tradable data is provided for FXTE NewsTrader subscribers, as well as the tradable values and a way to compute entry and exit points. Each issue of FXTE NewsTrader features a comprehensive table with tradable economic data that includes:

Dates of economic reports Times indicators are released Official name of the indicator Buy Values Consensus Forecast Sell Values Last Value Tradable Pair FXTE Tradable Values 2006 Track Record 2004-6 Track Record
PLUSExpert commentary is presented that explains in plain English the indicators in play and how news traders might position for profits based on past response to news. In the following sections, youll learn how to interpret key data in FXTE NewsTrader tables and how to use the publication to help you learn how and when to enter Forex news trades based on the differences between actual reported data and consensus forecasts.. Youll also learn how stops are set for a news trade

Interpreting FXTE NewsTrader data

Most key economic numbers are released on a monthly cycle. By plotting and analyzing the relationship between surprise or unexpected figures and the ensuing price action; patterns can be identified and traded successfully. When surprises in economic reports consistently result in significant directional price action, future surprises can be taken as a trade signal. Each week the editors of FXTE NewsTrader analyze currency markets around the world focusing their attention on upcoming announcements from government and economic authorities in major industrialized nations. When a scheduled data release has a historical record of providing trading opportunities, additional research is triggered. Consensus forecasts are found and calculations are made. The data is then summarized in an 11-column table for presentation to subscribers. Each of the columns (labeled A-K) is explained below. These can be used on a step-by-step basis to place practice trades in a demo account and learn how to position for profits from the market response to unexpected news.

Dates and hours key indicators are released

Date and Time (A&B) Most indicators are released precisely at specific times, especially those from government offices. Generally, when an indicator is not released on a schedule, FXTE NewsTrader will alert you in the commentary section below the table. (If you are outside the Eastern Time Zone, please make necessary adjustments to the schedule.)

Economic indicators that are candidates for news trades

How success is defined for creating the the track record We start with the pre-release price, which is the prevailing rate of the USDCAD just prior to release. If the news is tradable (surprise) then we observe the price action immediately following the release. The trade is recorded as successful if it moves 50 points from the pre-release price in the direction anticipated before it moves 20 points from the pre-release is the wrong direction. Economic Indicators (C) Each week, FXTE NewsTrader highlights indicators that have shown a consistent pattern of reacting to news surprises. Typically, a consistent pattern is generated when the immediate price action moves in a manner that reflects the magnitude of the surprise if the actual release data is different from the consensus forecast. The significance of each indicator is determined by studying each individually to determine whether or not a major difference between forecasted and actual data has consistently resulted in a meaningful directional price move in the past.

Consensus Forecast, Buy, Sell, and Last Release Values

Buy Value (D) The buy value indicates that if the actual number is 2.7 or more, a buy GBPUSD signal is generated. Consensus Forecast (E) This is the median forecast of knowledgeable market participants, such as economists and analysts from large financial institutions and brokerage firms. Sell Value (F) The sell value indicates that if the actual number is 2.6 or less a sell GBPUSD signal is generated.

Last (G) This is the actual prior release.

Tradable Value and Currency Pair

Pair (H) This is the suggested pair to trade when the actual number generates a trade signal based upon the buy (column D) and sell (column F) signals. TV (I) TV is the acronym for tradable value. Tradable value shows an expected minimal directional price move in the chosen currency pair if the actual number is different than the consensus forecast by the amount of the second number or more. In the example above, the U.K. CPI (above) has a TV of 50@0.1. If the U.K. CPI actual release is 0.1 higher than the consensus forecast (in this case 2.7), FXTE NewsTrader expects the GBP/USD to increase at least 50 points above the pre-release price. The Tradable Value is the minimum price move expected. Its possible that a much larger move could occur based on the magnitude of the difference between consensus and actual. For example, if the U.K. CPI actual release is 0.2 higher than the consensus forecast (in this case 2.8), FXTE NewsTrader expects the GBP/USD to increase at least 50 points above the pre-release price. A difference greater than the minimum 0.1 difference will be more likely to cause a move greater than the 50-point minimal expected move. The size of the move may also depend on technical conditions and market sentiment at the time of the release. The potential impact of these other factors on the news trades are discussed conceptually and by way of example during FXTE seminars.

The historical track record of each economic indicator

2006 and 2004-6 Track Records FXTE NewsTrader compiles the data of all releases of each key tradable indicator. The track record shows what percentage of the trades actually worked; meaning what percentage of the time a trade signal was given and the price projection target was met prior to the stop loss (see below) being triggered. Column J shows accuracy in the recent past. Column K reports on a longer time frame and includes the recent data. How success is defined for creating the track record To determine success, we start with a pre-release price, which is the prevailing rate of a currency just prior to release of the news. If the news is tradable (surprise) then we observe the price action immediately following the release. The trade is recorded as successful if it moves 50 points from the pre-release price in the direction anticipated before it moves 20 points from the pre-release is the wrong direction. Calculating the Past Track Record Over a period of 30 months it was observed that the Canadian trade balance showed the following statistics: 0.6 or more difference between consensus and actual o resulted in a 50 point or more directional price move o 82% of the time. To use the information, a trader looks at Canadian trade balance data when it is released, and notes the difference between consensus forecast and the actual release. If the difference is 0.6 or more we enter a trade, based on our observation of the 82% track record that the price moved 50 points or more in a directional way.

Example of News Trading.

The following example shows how a news trader can prepare for surprises and get into position to profit. The Set Up for the Canadia Trade Balance On March 9, 2006, Canadian Trade Balance data was scheduled to be released at 8:30am. The consensus forecast was a surplus of 7.4 billion dollars. Tradable value was presented in FXTE NewsTrader as 0.6 billion dollars. Positioning (negative) Subtracting .6 from 7.4, we determine that an actual number is 6.8bil or less is considered a bad surprise In this case we might expect to see the USDCAD increase 50 points or more above the pre-release price before it declines 20 points below. Positioning (positive) Adding 0.6 to 7.4 billion, we get 8.0 billion. If the actual number is 8.0 or more then past history suggest movement from this good surprise. In this case we might expect to see the USDCAD decline 50 points or more below the pre-release before it increases 20 points above the pre-release price.

Guidelines for trading news

Steps to entering a trade| 1. Determine if the news is tradable. 2. Make sure you get the news within a few seconds of its release. 3. As a rule of thumb you want to enter the trade at a price that is within 50% of the expected price move. This can be done with a market order or a limit order (retracement), depending upon the price action. (FXTE covers alternative news trading entry strategies in detail in its intermediate and advanced seminars and in the online coaching program.) Steps to exiting a trade 1. Make a trade plan and decide whether the trade will be a short or medium term. 2. Consider exiting short-term trades using a 3 bar reversal or a price projection based on your observations and technical factors. (More advanced exit techniques are provided in our seminars and coaching programs.) Money Management, Stop Losses and News Trading Risk reward ratios for news trades are generally not good. The track records reflect the past and are do not guarantee indicate probabilities looking forward. Risk reward ratios can be tailored using retracement strategy. (This is covered in more detail in our seminars and coaching programs.) As always, each trader must take precautions to safeguard their trading capital. This means using stop losses. The stop loss is calculated based upon a specific number of points from the pre-release price. How many points from the pre-release price depends upon which currency pair that is being traded: EURUSD 10 points GBPUSD 15 points USDCAD 20 points

Final Word on Stop Losses Always place a stop loss order to protect capital
Trading foreign exchange carries a high level of risk and may not be suitable for all investors. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and tolerance for risk. Do not invest money you cannot afford to lose. Trading (spot) currencies involves substantial risk of loss. FXTE is not a registered investment adviser, broker or dealer. FXTE employees and contractors do not give investment advice. FXTE products and seminars, including the weekly FXTE NewsTrader publication, are offered for educational purposes only. FXTE is a trademark of the FX Trading Education Corp. FXTE encourages consultation with a licensed professional regarding particular investments or the use of any investment strategy. FXTE 2006