August 5, 2014
It’s a common theme in my blog to emphasize the importance of avoiding trades around news time. My recommendation is to avoid trading it completely, especially in the context of simple short-term up-down binary options. At many brokers, you may not even be able to get into a trade in the first place because they aren’t able to fill your order with the price of the market moving so fast.
Here is one such chart image image that occurred today on the GBP/JPY that can really emphasize the point:
Price was moving around the pivot level doing a whole lot of nothing. Maybe if you’re into trading pivot points you may have taken a trade on the candle directly before the news release at the pivot. This probably would have been a very mediocre trade anyway due to the fact that the congestion immediately under the level could easily act as support and the pivot wasn’t being well respected anyway with price moving around it in a serpentine fashion.
But then you get a news release that you didn’t expect and you just lost your trade by forty pips. (!) In today’s case, three main announcements were released at 4:30AM EST relevant to the Great Britain Pound (GBP), with GBP Official Reserves – measured relative to change from July (one month prior) – being the main factor leading the huge move.
Moral of the story? Always check your daily economic calendar! For trading European mornings, I prefer to use this one:
And I prefer to set the time zone of when news is released to the one my chart uses, which is Eastern Standard Time, to avoid any confusion as to when what data is being made available to the public.
And I do realize that there are many news releases. If you look at a calendar, there are several, and often spaced close together. But to avoid headache and confusion regarding when to avoid the market and when you’re safe, just understand that many affect the charts minimally. The main news points that you do need to heed carefully, however, are at 4:30AM and 8:30AM EST. This is usually when you’re getting these large price spikes like the very notable example I showed above.
So as always, be careful when it comes to news, because it’s no fun when a good trade set-up goes bad just because technical cues (support/resistance levels, price action patterns, etc.) go flying out the window when news of any note is released, as the market reacts to it instantaneously.
Anyway, on to today’s trading:
I took one trade today and it followed the basic form of my favorite kind of trade set-up. Any long-time readers might understand that my favorite kind of trades are those that follow the trend and come off retracements back to a support or resistance level. And, of course, with the same usual price action type behavior that gives me the green light to get into trades.
This one was slightly different, however, as price came down through the pivot point and through support 1. Ideally, when I take trades with a downtrend based on a retracement back up to a resistance level, I prefer that it touches a support level of note below it. This tells me that the sellers in the market are serious enough to push price down lower and the buying picks up steam only when the support level is reached. Because that’s simply what a support or resistance level is in a financial market – a supply/demand balance.
When the down-move is cut short in the middle of a channel – that is, an area between two support/resistance levels – it may suggest that the selling pressure that you’d ideally want in the market isn’t as strong as you might like it. The market is basically saying that the down-move may not have the sustainability aspect in store if the buyers pop up in an area where it seems premature.
So I wouldn’t say this was a 10/10 set-up, but as long as you deem the probability of the trade working out in your favor, it’s worth it.
On the 4:00 candle, the downtrend discontinued and came up to touch the support 1 level of 1.34094. To better determine if support 1 would hold or be broken I waited to see what the 4:05 candle would bring. It touched the level, but formed a doji underneath. At this point, I felt pretty good about a put option here, so upon the touch of 1.34094 on the 4:10, I got into the trade and had a three-pip winner by expiration.
These are always good set-ups to consider for your trading. But don’t trade them indiscriminately, of course. Never force things and let it come to you. Specify ahead of time what price you want to get in at if things set up according to your rules of entry (i.e., what needs to happen to get into a trade), and stick to it. It’s definitely a set-up I like to share and one that will win more often than not.