News releases and economic data releases occur all day long around the world; and it is well known that certain news releases often precede major moves in the forex markets. For example, the US Non-Farm Payroll release (an indicator of unemployment), interest rate decisions (like the FOMC rate releases), manufacturing data, and consumer confidence reports are known for frequently igniting large and rapid moves in the market. Trading the news releases is much trickier than it sounds. Many new traders think that trading a major news release will be a “sure thing.” This is definitely not so. Times surrounding major news releases are also some of the most volatile times in the market. A trader can place a trade, gain 30 or so pips, and then watch the trade abruptly reverse in the blink of an eye for a loss.

Just like any good strategy, a trader who decides to trade the news should spend some time before the release to determine support and resistance points for the currency pair, and then to determine good entry and exit points. This planning should take place before the news release occurs. In other words, it is never a good idea to wait for a news release and then “jump on the freight train” when you observe it has taken off in a certain direction. If you do this, you can be nearly be assured that you are entering the trade too late. Unfortunately, many new traders try the “jump on the moving freight train” approach at first, only to discover it is a bumpy and perilous ride often ending with surprisingly large and unexpected losses.

The point is, of course, that a well thought out plan and a specific strategy is most certainly needed when trading news releases. One good strategy incorporates a Scalping Strategy together with the Breakout Strategy. Usually, before a major news release, the markets will seem to “pause” for many hours or even an entire day as traders await the release of the data. During these market times, the currency pair will usually stay in a tight consolidation pattern ranging 30 to 40 pips. This provides the perfect opportunity to put on a breakout trade just above or below the current resistance or support points.

Once you have determined an entry point, placed the trade, and earned 20 or 30 pips, you may be well advised to close the trade and take your profits before a reversal occurs. Many times the market is moving so fast that you will not be able to close out your trade in a timely manner due to a rapid change in price. So if you can get out with a reasonable profit, do so!

And finally, if a reversal does occur — do not wait for the currency pair to recover. When a strong reversal occurs and you are still in an active trade, close out the trade for a smaller than expected profit if possible. A strong move during a news release is nearly always abruptly met with a strong counter move.

Overall, this author prefers to stay out of the market major during news trading as the extreme volitality can be difficult to cope with. In this author’s opinion however, the best strategy for news trading might be to use a scalping method during the breakout.