Simple Forex News Trading Strategy with ATR Stochastic Indicator

Simple Forex News Trading Strategy with ATR Stochastic Indicator

Some events or news release can cause an immediate increased in volatility. If you have enough experience, trading news release can be extremely profitable which is why we created this Simple Forex News Trading Strategy that uses ATR Stochastic Indicator. To trade the news you could simply trade it before the result actually happens or you would have to either use the forecast to get an understanding of what the market consensus is, or you can simply trade the news as it happens after the results are in and you react off of that. There are few different ways you can actually trade based on the news and the majority of traders tend to trade solely based on the technical levels without being too much worried about the actual economic news releases or any particular event risk.

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In order to become a complete trader and increase your odds of success, it’s important to also research into the major risk events such as central bank’s rate decision, inflation report and other macroeconomics and geopolitical events that might have a substantial effect on the currency exchange rates. This way you’ll be able to formulate a much clear bias and have a clear view of the market direction. News trading can simply be viewed as the catalyst for higher volatility, and we are all at the mercy of volatility in order to be able to generate a profit.

We all need an injection of volatility for the market to move, and in essence, volatility isn’t a bad thing neither excessive volatility as this has the potential of being the source of higher profits. However, volatility can also be a double edge sword if you’re not using a proper risk management.

News Events Provide Increase Volatility that You Can Exploit

Going forward you’re going to learn how to actually trade the NFP Report or the Fed interest rate decision or event risks such as Brexit or any big Forex news event. The first thing to mention is that following the crowd is never a smart way to trade, the better way to trade is to do your own thinking and your own research. You’re going to learn a simple strategy that will help you anticipate the market reaction to the news and how to trade the news properly.

Simple Forex News Trading Strategy using ATR Stochastic Indicator

The ATR indicator is a powerful indicator and if used correctly it can help you identify potential burst in volatility and to determine how far your SL and TP levels should be, which makes it a great tool to use when trading the news. The preferred settings for the ATR indicator are the default settings.

Simple Forex News Trading Strategy - ATR Indicator Setting

Simple Forex News Trading Strategy – ATR Indicator Setting

The Stochastic Indicator will help us identify the overbought and oversold conditions from where potentially we can have a reversal. The preferred settings for the Stochastic indicator are the default settings.

Simple Forex News Trading Strategy - Stochastic Oscillator Setting

Simple Forex News Trading Strategy – Stochastic Oscillator Setting

The basic idea behind our strategy is that we’re looking for a divergence between what the actual data suggests and what our technical indicators tells us. If the fundamental data suggest that a currency pair should raise but our indicators tell the currency pair should fall, only then we have a green light to take a trade. The basic buy/sell signal rules of our strategy are as follows:

  • Busy Signal: If there is a divergence between the fundamental data and the technical indicators buy at the market if the Stochastic is below 20 and a crossover happens. You should use a protective SL equal to the Daily ATR and take first profit at ½ of the Daily ATR. Move your SL at BE once TP1 was hit and close the second half of your trade once full Daily ATR is hit.
  • Sell Signal: If there is a divergence between the fundamental data and the technical indicators sell at the market if the Stochastic is above 80 and a crossover happens. You should use a protective SL equal to the Daily ATR and take first profit at ½ of the Daily ATR. Move your SL at BE once TP1 was hit and close the second half of your trade once full Daily ATR is hit.
  • Preferred TF: 15-Minutes.

How to Trade with this Simple Forex News Trading Strategy?

Using as an example the September NFP Report we can highlight that the general consensus was for 180k new jobs created down from 275k as it was a month earlier. In normal condition, this would be bearish for the US Dollar and subsequently bullish for the EUR/USD. However, our technical indicators were suggesting that we’re in oversold conditions (based on the Stochastic Indicator) and there is divergence which means we have a green light for a trade.

Simple Forex News Trading Strategy

Simple Forex News Trading Strategy

In the chart belowwe have the EUR/USD 15-minute chart and a short trading opportunity is highlighted during the NFP news releases which came even worse than the forecasted figures. This ultimately reinforces the gap or divergence between the actual data and the technical indicators.

Simple Forex News Trading Strategy - Increased Volatility After News Release

Simple Forex News Trading Strategy – Increased Volatility After News Release

The principles behind our strategy are not limited to just economic data releases, but they can be applied to big risk events such as Brexit as well. Analyzing Brexit, the general consensus among market participants was that the UK leaving the 28-nation bloc is a low probability event so clearly the risk was to the downside. However, when comparing the consensus with the Stochastic indicator we can clearly see a divergence in view which is the sign for a potential trade.

Simple Forex News Trading Strategy is also effective of big one off events like Brexit

Simple Forex News Trading Strategy is also effective of big one off events like Brexit

Using the ATR volatile measurement for our SL it gives us enough room to trade even big risk events without to worry that our SL could be hit. We also need to exercise a lot of flexibility with our TP if we’re trading event risk that potentially can disrupt the market volatility in a big way such as was the case with the Brexit.

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