How to trade on an economic announcement?
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Traders are often attracted to trading on economic announcements. However, trading on an announcement is very often a source of loss. These are very volatile times, when opening positions and managing stops is complicated. The big winners of announcement trading are banks and hedge funds that use trading algorithms, the well-known high-frequency trading. You're the suckers.
Trading on an announcement is not to be forbidden. There are several strategies to take advantage of them if you are an experienced trader (see - Trading on economic announcements) but it is very important to respect a golden rule: do not be influenced by the announcement! For that, there are two possibilities: either not paying any attention to the announcements (taking positions throughout the day without taking them into account), or trading on them but respecting your trading strategy (trading when you have a bullish/bearish signal before/during/after an announcement).
In both cases, this amounts to giving no more importance to an economic announcement period than to another time of the day. You don't trade on them directly, you just follow your trading strategy. A signal is given to you, you take it, no matter when it is given to you (outside or during an announcement).
If a very large number of traders lose out during announcements, it is precisely because they make this news a special event. They change the way they trade because of the announcement. However, it can be dangerous to deviate from your trading strategy. This is one way some traders raze their trading accounts .
To give importance to an announcement is to be influenced in your judgement, to no longer be objective. Effectively, once the announcement is published, you will look at the chart and interpret it your way. The movement following an announcement is influenced by several elements, consensus and also the trend of the published indicator, the element of surprise. For an individual, it is more difficult than is believed to truly master understanding an economic figure!
Similarly, before an announcement, some traders anticipate the figure that will be published. As a result, this interpretation of the announcement will give them a trading direction that is not necessarily what their trading strategy gives them (or what technical analysis indicates). In these cases, it is always the subjective side that wins and the trader often ends up losing, he no longer takes into account trading signals but simply follows his market sentiment.
Market sentiment for novice traders is often in the opposite direction of what it should be. All you have to do is look at the trading tools distributed by forex brokers which indicate market sentiment (based on their clients' positions) on each asset. You will notice that this feeling is very often the opposite of the trend, of the movement in progress. This is due to the fact that all these traders do not follow a trading strategy but trade based on feelings, on subjective feelings about the direction that the market will take. That's why we find ourselves with 80% of traders losing. Moreover, these traders do not place stop losses and they persist in wanting to be right when faced with the market. It always ends with a razed account! Trading on an announcement based on sentiment gives the same result.
To trade on an announcement well, the best way is not to trade it but simply to continue to follow your trading strategy as if nothing had happened. Don't change the way you trade based on an announcement. It is important to remain objective and base your investment decisions solely on technical signals, not on your market sentiment.
Ignoring the announcement
Trading on an announcement is not to be forbidden. There are several strategies to take advantage of them if you are an experienced trader (see - Trading on economic announcements) but it is very important to respect a golden rule: do not be influenced by the announcement! For that, there are two possibilities: either not paying any attention to the announcements (taking positions throughout the day without taking them into account), or trading on them but respecting your trading strategy (trading when you have a bullish/bearish signal before/during/after an announcement).
In both cases, this amounts to giving no more importance to an economic announcement period than to another time of the day. You don't trade on them directly, you just follow your trading strategy. A signal is given to you, you take it, no matter when it is given to you (outside or during an announcement).
If a very large number of traders lose out during announcements, it is precisely because they make this news a special event. They change the way they trade because of the announcement. However, it can be dangerous to deviate from your trading strategy. This is one way some traders raze their trading accounts .
Market sentiment: a trap for traders
To give importance to an announcement is to be influenced in your judgement, to no longer be objective. Effectively, once the announcement is published, you will look at the chart and interpret it your way. The movement following an announcement is influenced by several elements, consensus and also the trend of the published indicator, the element of surprise. For an individual, it is more difficult than is believed to truly master understanding an economic figure!
Similarly, before an announcement, some traders anticipate the figure that will be published. As a result, this interpretation of the announcement will give them a trading direction that is not necessarily what their trading strategy gives them (or what technical analysis indicates). In these cases, it is always the subjective side that wins and the trader often ends up losing, he no longer takes into account trading signals but simply follows his market sentiment.
Market sentiment for novice traders is often in the opposite direction of what it should be. All you have to do is look at the trading tools distributed by forex brokers which indicate market sentiment (based on their clients' positions) on each asset. You will notice that this feeling is very often the opposite of the trend, of the movement in progress. This is due to the fact that all these traders do not follow a trading strategy but trade based on feelings, on subjective feelings about the direction that the market will take. That's why we find ourselves with 80% of traders losing. Moreover, these traders do not place stop losses and they persist in wanting to be right when faced with the market. It always ends with a razed account! Trading on an announcement based on sentiment gives the same result.
Conclusion
To trade on an announcement well, the best way is not to trade it but simply to continue to follow your trading strategy as if nothing had happened. Don't change the way you trade based on an announcement. It is important to remain objective and base your investment decisions solely on technical signals, not on your market sentiment.
