Managing news risk within a trading system

[JTrader]

Hi

lets say you trade GBPUSD off 30 minute (which are medium term intraday) charts, and your system usually gets a maximum of 6 entry signals from 0700 - 1600 UK time.
You also use a 20 pip maximum stop loss (which is also a medium term stop-loss perhaps)

When you get one of your systems relatively infrequent entry signals, close before a news announcement, knowing that if you enter, the news release could cause a gap of more than your 20 pip stop loss against you.
How do you manage this risk?
Do you enter the trade before the news and take your chances.
Do you wait for the release and if price then moves in the direction of the original signal, you then jump on-board in that direction, all be it entering at a less favourable price.

Many thanks.

 

[fibonelli]

Hi JT,

Check out this thread I started on the pros and cons of placing your stops first. You may wish to look at the video on page 1.

http://www.trade2win.com/boards/showthread.php?p=323780#post323780

Regards

Fib

 

[JTrader]

Hi JT,

Check out this thread I started on the pros and cons of placing your stops first. You may wish to look at the video on page 1.

http://www.trade2win.com/boards/showthread.php?p=323780#post323780

Regards

Fib

Thanks fib,

placing a stop (loss) before an entry, or just physically placing a stop-loss order after entry, if the entry is placed before the news release, are the best ways of ensuring a better chance of exit at ones maximum stop-loss, if the news sends price against ones trade.

However, there are no guarantees that one will only lose 20 pips, if a gap beyond the level that you placed your 20 pip stop-loss occurs. One could lose more, and a large part of this would boil down to what the first price that the broker quoted in the seconds after the news release/after the price gap.
Therefore risk still remains, in entering a trade, before a news release with a "normal" sized SL of 20-pips that could easily get taken out or worse.

 

[rossored]

due to ignoring persistent warnings, pssonice has been banned for 24 hours.

 

[TWI]

I test how the system performs on days such as non-farm. On fx systems I run I have found that non farm days outperform the average. There may be as much risk about getting it the right way as not and my outperformance may suggest that the market tends to price in figure before release and market is on the whole right.
If I found the opposite to be the case I would not trade on that day as a simple solution. I have found 2 things to help. Partial profit targets and tightening of stops before/after key events and targets.

 

[tradewinds]

Hi Jtrader, this was one of the reasons I stopped looking at shortterm systems, ie, intraday systems. I just didnt like the volatility involved with all the news releases...I started to trade daily charts where I found if I got the trend right then the volatility would nt effect my position too much.
I guess everyone has different tolerances, but I personally just found it tedious trying to adjust for gaps and spikes...

 

[JTrader]

Up until now, I've been trading on a micro timeframe. But I'm considering increasing timeframe, stops, etc. which is what it sounds like the majority of T2W forex traders sound to be doing.
At present i have no experience of trading on longer timeframes, so to switch from "micro to macro" is quite unfamiliar territory....

Trading forex on a micro level is less tolerant to volatile price action in many ways, and relies upon quite specific conditions in price action IMO. This is one reason why I'm considering this switch.

I'm brainstorming here....
The prospect of being live in a trade as economic news is about to be released, seems a bit kamikaze to me, if using SL's with say a 20-pip maximum, but if the trade was already in profit, this risk would seem more acceptable.

But then, if you're not positioned in the trade pre news release, as your strategy would want you to be, entering post release, once any move/trend/consol is underway, may cause problems.

The other option is to enter before the news release (if there is enough time to make it worthwhile in terms of if any profit is likely to materialise), exit before an important release, and then look to maybe re-enter the trade after the release. This would work well if a trend direction establishes itself, but not if conditions are whippy - ranging, and we do not know what will happen here.

Or, if re-entering after the news release seems a bit of a hap-hazard method, stepping aside completely, and wating for the next signal is the other option.



Thanks.

 

[JTrader]

Hi Jtrader, this was one of the reasons I stopped looking at shortterm systems, ie, intraday systems. I just didnt like the volatility involved with all the news releases...I started to trade daily charts where I found if I got the trend right then the volatility would nt effect my position too much.
I guess everyone has different tolerances, but I personally just found it tedious trying to adjust for gaps and spikes...

Thanks chaps.

Hi tradewinds.

I still plan to trade intraday.
The frustrating thing about the micro timeframe within my strategy/s is missing decent moves, like all of today post 1330 news up move in EURUSD, due to not getting a valid signal. This is annoying because it is clear that price is moving up, but with small stops in place, it is hard to pinpoint whether price will fall back some before resuming upwards.
By using an approach on a longer timeframe, with bigger SL's, greater tolerance to catch the move then exists, albeit with smaller stakes sizes (while risking the standard same 1-1.5% capital per trade).

On the micro timeframe every tick becomes critical, and missing out can happen easily.
And like today, once the move that i didn't have an opportunity to enter comes to an end, price comes to a stand-still again with no opportunities them.


My thinking is -
eg. There's no difference in end £ profit level between a trader making 25 pips profit per week with 5 pip SL's, than there is a trade making 100 pips per week with 20 pip SL's, if the same amount of capital per trade is risked, and increasing timeframe, should make it easier to get involved once the moves occur.


In the mean-time I've seen cable rise 150 pips today in a fairly smooth up trend....But then to negotiate any profit from this, one needs to handle the news periods (a bit like a canoeist negotiating some rapids - do they get out of the water and walk further downstream, or plough straight through).....which brings me back to my original dilemna...

Generally talking at this moment, with no specific strategy or rules in mind , re-entering a trade after news, once a breakout/confirmation in the direction of the original signal has occurred, may be an adequate indication for a good re-entry, but if price is making new high's or lows, it becomes a bit like a runaway train, this becomes more difficult, and and then the most likely S/R in forex would appear to be the following 0 25 50 75 lines.

 

[daytradingworks]

day trading

hello everyone
my first post although i have had been reading thru for a while.
been day trading for long enough to say with confidence what not to do. until the boe employs me i guess i am not qualified to say what to do.
this is just for day traders. real day traders.
stop using 30 min charts, never trade 1 hour prior to major news. positions held prior to news close by min of 50 pct. if prior to news you are within 80 of your objective, close the lot.