How to Trade Just Before Major Announcements
Avoid opening positions just before major announcements
When a major news announcement is about to be released financial markets typically consolidate. Ranges become smaller, volume dries up, and volatility falls. Why? Simply because few traders want to take financial risk prior to a major news event. This article will give you some general tips on trading just before a major news announcement.
The greater the risk of the event the less direction you can see prior to the meeting. So, a hotly anticipated central bank meeting will see more of a price ‘freeze’ (period of smaller range activity) than a lower-tier economic data point that the market is not looking at. The general rule of thumb is this: the greater the anticipation, the smaller the price moves just before the event.
The exit from the event is where the best opportunity lies
When the anticipated event is over that is when the market moves. So, there are a number of ways this can happen. Sometimes traders wait for a major risk event to pass and then put on the position they wanted to anyway. On other occasions, traders wait for the data and if the data changes the prevailing narrative they will go with that new change. So, let’s give an example.
On Monday, October 03 the US ISM Manufacturing Print was coming up. Markets saw this as a key event to test the new emerging narrative that the Fed would have to ‘pivot’. That meant a poor reading will have investors expecting a slower path of US rates (a Fed ‘pivot’). In the event the US ISM Manufacturing data printed significantly lower across the board. The pivot narrative suddenly had legs.
With the Fed ‘pivot’ idea gaining legs for the session, what were we expecting? Gold, Silver buying (on a weaker USD), and stocks to gain. One simple trade to take out of the event on a simple S&P500 long into the next economic event on Wednesday.
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