Wednesday September 12, 2018 - 08:57:32 GMT
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Forex: How to trade GBPUSD in a Brexit news driven market
Anyone trading forex these days has seen a Brexit news whipsaw in GBPUSD, which seems to have become a daily occurrence. What I mean by that is GBPUSD (and EURGBP) suddenly spiking higher or lower on a Brexit news headline. While the extent of the reactions most times are not supported by the news, it shows a high market sensitivity to any headline that hints of a yes or no. hard or soft Brexit outcome.
News algos, meanwhile, react to headline keywords and leave it up to us human traders to interpret the news. As long as it works, expect this pattern to continue.
However, as many have learned, standing in front of one of these Brexit news reactions can be a painful experience so it pays to let the dust settle unless you have a level in mind to fade the move, especially if you see it as an overreaction.
How to trade GBPUSD in a Brexit news driven market
Take a look at this chart with the Amazing Trader running on it. The chart shows three separate instances on Sept 11, 2018 of a GBPUSD Brexit news whipsaw. In each case the news did not justify the reaction as Brexit negotiations are ongoing and there was nothing definitive reported.
So the question is how to to avoid getting swept away in this type of environment and take advantage of extreme reactions without standing in front of a speeding freight train.
1) The first way, of course, is to get access to the news so you know what the latest Brexit headline.
2) The second way is to be aware of key levels above and below the market using a program like the Amazing Trader so you can take advantage of a sudden spike in GBPUSD. As you can see by the chart posted above, there was a key resistance level lying above the market highlighted in advance by the Amazing Trader.
3) A third way is again to use the Amazing Trader, which has the ability to highlight the directional risk at any point in time. We have found that more often than not the Brexit whipsaw reactions are often preceded by a directional risk pointed out by our program, indicating the side that was most vulnerable to a shock or surprise.
In any case, Brexit news whipsaws have become a daily event and traders need to find tools, such as what I indicated above, to avoid getting swept up in a tsunami reaction and find levels to take advantage of times the market overreacts.
Jay Meisler, co-founder
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