The strategy that I prefer and that
works the best for me is when price moves into consolidation before
the report is released. I prefer to see price remain inside the
consolidation range for several hours and preferably through a few
sessions before the report.
This helps me to identify a clean
break out candle.
If I don't see price inside of
consolidation, then I will most likely stay out of the trade all
together but watch the reaction. Remember, each time you trade it, it
will be a different set of circumstances that can have an effect on
price.
What time frame is best?
Well honestly this is a matter of
opinion. Some people use a 5 minute chart to identify a break out
candle, and I like using a 1 hour chart.
Getting the data:
When it comes to news services, you get
what you pay for. Since most people that are new to trading have a
limited budget, they try to get many things for free. There are some
news feeds that are free but I wouldn't think of trading real money
on the initial reaction when the news is released.
Using a break out candle as you entry
and even using a larger time frame, you will have more time to
confirm the numbers that are reported when the announcement is read.
This means that the success of your trade wont be determined by how
fast you can get into the trade after the data is available. Jumping
into a Non Farm Payroll trade immediately when the announcement is
read is probably the worst idea for a new trader. There are simply
too many things that can go wrong.
What size stop loss should you use?
This is probably a matter of personal
preference.
Some traders use strategies that only
allow them to trade when the risk is no more than 20 or 30 pips. This
will determine what type of time frame they will use to execute the
trade.
Other traders might tell you that it's
not a good idea to use a fixed number as a stop loss, if you're not
incorporating support and resistance on the particular time frame
that you are using.
Whether you are using a 5 minute chart
or a 1hour chart, you need to identify support and resistance and
then base your stop loss on that information. This is how we traded
June 3 2011 Non Farm Payroll first we will look at the EUR/USD 1 hour
chart.
This is the consolidation range I was
referring to. There is about 20 hours of price moving sideways when
the report wasreleased. This gives me a clear range to identify when
the candle breaks out.
This consolidation is also support and
resistance so I would also include the low and high to determine my
stop loss placement. This next chart below is the USD 1 hour.
The EUR/USD and the USD looked similar
to me and I used them as confirmation. If I see one pair moving or
trending and I can't determine why, then I will stay out until I can
find the reason. The charts below show the actual break out candles
that occurred on the 1 hour time frames for each of these currencies.
EUR/USD 1 hour chart (Break out candle)
USD 1 hour chart (break out candle)
This strategy requires a clear
candle break out. I also prefer to wait until the candle is
closed before entering the trade.
Waiting for the break out candle
and waiting for the candle to close gives me plenty of time to
confirm the data and even to confirm the sentiment of the market (the
reactions).
Now I haven't really discussed the
profit targets.
In general, I try to use a one for one
reward to risk ratio. But keep in mind that this isn't always
possible.
The best method to use in finding
places to take profits is to study the charts relative to the time
frame you are using to enter.
This will take sometime but you will
start to see patterns that repeat. This includes how far price will
move after the typical break out and the time frame will also help
you determine the distance price can move in a given period. Below is
the trade we entered after Non Farm Payroll on June 3 rd . Please
notice that I used the 1 hour chart and I waited until the candle
broke out of the consolidation range.
This trade resulted in approximately 60
pips profit.
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