Friday July 20, 2018 - 10:46:57 GMT
Share This Story
Global-View.com - www.global-view.com
Forex Traders: Beware of the News
For as long as I can remember the forex market has had tendency to react (often overreact) to news. However, times have changed with liquidity providers replacing bank dealers and the main source of forex pricing, leaving the market without true market makers.
What I mean by that is that market makers had an obligation to provide a two-way quotes under all conditions while liquidity providers can simply pull their bids or offers at the first whiff of volatility.
Add in news algos, which react to keywords without any regard to what the news means and you have a prescription for sudden, volatile reactions to news.
So while in the old days you could count on bank dealers to interpret the news and decide whether the reaction was warranted, in current times you need to step back, let the dust settle before taking a stand if you feel the market has over reacted.
As Dennis Gartman wrote in Gartman’s 20 Trading Rules "Markets can remain illogical longer than we can remain solvent," according to our good friend, Dr. A. Gary Shilling.
Anyone trading in the forex market knows this statement has become even more true, especially recently where a news reaction seems to become a daily event. Take this week for example. Brexit news saw sterling whipsaw in both directions depending on the headline. Then on Thursday, headlines that President Trump was “not thrilled) with Fed rate hikes and that a strong dollar “puts us at a disadvantage” saw the US currency tumble.
My interpretation was that he was talking more about a weakening Chinese currency but in typical fashion, the forex market reacted by selling the dollar across-the-board first without regard to how significant the news.
So how do you trade when you see a reaction as an overreaction? All I can say is more often than not that it takes a lot more time for rationale thought to take over as we at the mercy of algos controlling the pricing.
Here is what I do to turn this into an opportunity
1) I take a deep breath rather than letting my emotions take over.
2) I look at my charts with the Amazing Trader program on it as it always has levels you can use for trading no matter how volatile a market
3) I look for an Amazing Trader pattern to indicate a move has topped or bottomed. See the chart below.
To sum up, the evolution of the forex market continues and this means you need to find tools to help you in what will continue to be a news driven environment. I showed you what I use to treat the volatility as an opportunity but with a discpline I did not need in the past.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."