Fatal Trading Mistake | Trade Ahead The News | The Diary of a Trader

Fatal Trading Mistake | Trade Ahead The News | The Diary of a Trader


Welcome back to the corps. I’m going to look at one of the absolutely
fatal mistakes that we all make at one point or another. Normally with a little luck it’s early in
your career and it doesn’t cost you too much. But that’s trading ahead of the news. Some people used to do it on purpose because
you would get the sudden explosions to one direction or the other. However a lot of the algorithms out there
now are reversion to the mean type of algorithm. So if the market leans too far in one direction
you’ll get a lot of reversal trading so trading the news really isn’t no longer. It’s really not a thing for retail traders. You don’t have anywhere near enough speed
in your system to compete with the multimillion dollar systems that are set up. However. That even went by the wayside with these high
speed systems because quite frankly a lot of people lost a lot of money. Trading ahead of the news is very dangerous
because liquidity comes out of the market and the price can suddenly spike in one direction
or the other or. As we’ve seen in the last couple of years
both directions at times and in front of you I have one of the most important tools that
you can get for free online and that is an economic calendar this happens to be for X
factory. But there’s investing dotcom Yahoo Finance
and a few others out there that are easily accessible to anybody as you can see there
are a list of announcements for Tuesday November 14th when they happen to be recording this
and there are color coded little symbols next to the announcement and red being the most
important orange and yellow descending like that investing Dotcom has a star system you
know and there are some other ones out there that use other systems but they all basically
will tell you how important something is. So if you were to get a signal to trade the
British pound shortly before the CPI numbers come out which is a high level event you may
wish to ignore that. This is because you can get massive moves
suddenly that move against you and the next thing you know you find yourself stopped out
of a trade that may eventually go in your direction anyway. You can see that some of these other announcements
such as the NF IB Small Business Index in America very low volatility very low importance
something like that you don’t really worry about too much unless there’s a specific event
going on. We’ve all been there where some headline crosses
the wire and it wipes our trade out and these are random headlines. So there’s no need to take on extra risk when
you simply can just make sure that it’s safe to trade so to speak or at least put a trade
on without any of this in front of you I have the euro dollar and this happens to be right
after the non-farm payroll announcement for November 3rd which was the October numbers. Now honestly this is a pretty muted reaction
but you can still see that in a couple candles we had spiked much higher. We had picked up about 50 60 pips and then
reversed that 90 pips if you had a position ahead of time where you said I’m going to
buy a break of this shooting star and this is what people used to do for news trading. You were very happy for a minute or two and
then it turned around. What this doesn’t show you is that this is
actually a minute or two that this happened and then we sold off almost immediately and
you’ll see that happen more and more. So by waiting for the longer term reaction
you can see that clearly the market wanted a sell off and then possibly put money to
work at that point but trained to jump in front of the news is a. Bad idea to say the least. And what makes it even worse is when you do
it on accident. So make sure to trade according to what the
calendar say if there is a major announcement coming out and one of the markets that you’re
trading in the next five minutes. Clearly you don’t want to put money into the
market because it can go into rather rapidly the type of disaster that would have been
part of going long of this pair could have been very easily avoided if you knew that
this type of volatility was coming.

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