How To Position Yourself For News Events?
When to trade into news events and when to trade out of them. A simple but effective approach.
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Just quickly following up on an excellent question from a subscriber asking how they can better position themselves before a news event.
Knowing how to position yourself before major news events is really a very critical skill that you need to master for trading in line with the fundamentals. And when you do it correctly, it can really offer you some great high-conviction, high-probability trading opportunities.
Now, there's two ways you can position yourself before an event.
You can position yourself to trade into a news event, which means that you actually anticipate a price move in the run-up to the event and trade it accordingly, or you can trade out of the event, which means that you wait for it to take place and then you trade it based on how the actual data came out versus the expected data.
Now, whether you trade into or out of events, the first thing you always need to consider is firstly your macro-fundamental bias, then your short-term sentiment bias. And then, of course, the market's expectations for that particular event.
So the market won't position itself just for any small or insignificant data point. You want to really focus on the highly anticipated events, events like inflation, GDP, employment, and of course, central bank monetary policy decisions, but only as well if these events are expected to be big movers for that particular event.
The more significant an event is, where currency's fundamental outlook, the more likely it is that the market will trade into that event. So that's a very important consideration that we need to take.
Now, the other time when trading out of news events can be useful is when the data or the event actually changes the bigger fundamental outlook for the currency. So think of a central bank policy decision, right? So suppose that the market expects the central bank to basically leave rates unchanged for the foreseeable future.
And then at the central bank meeting, the statement is released and the bank takes a tremendously dovish or hawkish stall by basically saying that a rate cut where rate hike is on the cards in the next six months or so. Now, that'll take the expectation from a central bank with no expectations to move on rates to suddenly a central bank that is not expected to move rates with the hike or cut in the next two quarters.
Now, that type of shift will obviously change the fundamental outlook and is also a great opportunity for trading out of events. So this is just a quick guide on how you can better prepare yourself before news events. For those of you watching, if you want this document, just take a quick screenshot of it maybe, save it somewhere that you can always reference it.
And always, just again, important, have those three things in mind, have your macro-fundamental bias align, your short-term sentiment bias align, and then of course, what the markets are expecting from that event always gonna be your most important criteria for choosing whether to trade into or trade out of important news events.
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