This strategy is deployed for trading event risk in the market.
The major news release forex strategy can be used as a confirmation tool for trading news events in the market.
Our case study is last month’s NFP release, which obviously was billed for April 1st, i.e. first Friday of the month.
N.B. Trading event risks like Non-Farm Payrolls can be risky, and as such anyone engaging new releases should be wary of how quickly their trading account balances can be ravaged in response to the extremely high volatility that characterizes such sessions – if you’re not prepared for this, wait for quieter sessions.
Our example is hosted on a GCI-Meta Trader 4 and its server is 5 hours behind GMT+1, our NFP release is at 08:30 GCI MT4 server time.
MetaTrader4 Indicators: Bollinger Bands (default setting), Pro4x Pivot Lines.ex4 indicator
Preferred Time Frame(s): 1-Minute, 5-Minutes, 15-Minutes, 30-Minutes, 1-Hour
Recommended Trading Sessions: London Open | New York Open
Currency Pairs: Majors (EUR/USD, USD/JPY, GBP/USD, AUD/USD)
Trading Example (Click the image for full size)
We start by analyzing price action before the NFP release just to give us a head start into what to possibly expect going into the release.
Price curve started off the day just above the ascending trend line, before swapping to below the trend line as shown on Fig. 1.0.
Our strategy is to wait for 20 minutes after the news release and weigh in its impact on price curve.
8:30 am sever time on GCI MT4: U.S. Non-Farm Payrolls that came in better than expected at 215k against consensus 205k.
This was good news for traders who were betting for a stronger USD and sentiments were in favor of the greenback.
We expect a sell in the EUR/USD pair, however it’s not unlikely to have a smooth downspin, due to bullish sentiments in the market (the market does not just go in a direction head-on, as it oscillates while doing this).
20 minutes after the NFP release price curve is on the lower outer band of the widened Bollinger Bands (remember that when the bands expands and price moves in a certain direction, then we can say price is trending is that direction).
- Enter in the direction of price curve is aligned i.e. if price curve is aligned on the top outer band of the Bollinger Bands, it is a go for a buy and if price curve sleeps on the outer lower band of the Bollinger Bands, a sell should be initiated.
Stop Loss for Long Entry: Place stop loss below the top outer band of the Bollinger Bands.
Exit Strategy/Take Profit for Long Entry
Exit or take profit on position(s) if any of the following unfolds:
- Watch price action and its reaction around the various support levels on the Pivot points. If price bounces off a supposed support level, it is wide to consider exiting or take profit.
- If price curve breaches the middle band of the Bollinger Bands on its way up, it is a signal that a upward pressure is building.
About The Trading Indicators
The Pro4x Pivot Lines.ex4 is a technical indicator that is designed to spot critical market trend points, where price movements can meet resistance or support and possible change its course.
The Bollinger Bands is one of the technical studies that is developed by John Bollinger and is made up of a center line and two price channels (bands) above and below the middle line.
The middle line is an exponential moving average, while the price channels are the standard deviation of the asset being considered.