"It's not whether you are right or wrong that's important, but how much money you make when you're right and how much you lose when you are wrong."George Soros
"Risk comes from not knowing what you are doing"Warren Buffett
Predicting news announcement is notoriously a bad way to go about generating trade ideas. Frankly, news presents a double-barreled shotgun of risk. A) You don’t know what the news will be, and even if you did b) you don’t know exactly how price action will incorporate that news. So rather than hoping and guessing, which are generally terrible trading strategies, traders can look to the chart to try to find setups. And, of course, as always the case with major news announcement – if you’re not comfortable or don’t want to take on the risk, don’t’ trade it.
We covered a similar strategy built around news volatility earlier in the week in regards to GBP/JPY, entitled News Can Help, News Can Hurt. The premise being that, given that news releases are an unquantifiable amount of risk with the simple premise that volatility will increase around the event, traders can look for positive risk-reward ratios in order to try to take advantage of that volatility.
Moving into tomorrow’s ECB announcement, most Euro pairs are putting in bearish price action formations. These recent price action swings can allow traders to take a short position ahead of the news with a positive risk-reward ratio so that if the ECB doesn’t deliver, the loss can be mitigated as new highs are made. But if they do deliver, the trader can potentially look for a larger profit targets than the risk they may have to put up to get in the position in the first place.
On the chart below we’re looking at the current setup in EUR/USD. Notice that as of today, the daily chart is working on an evening star formation. This is a bearish reversal pattern, and should it complete at the close today, then traders can look at getting short off of this pattern ahead of the ECB. This would allow a trader to get a stop above yesterday’s doji/inverted hammer formation, and should the ECB deliver the trader can look for deeper support levels to come into play at 1.0824, 1.0757 and then at 1.0600. But if they don’t deliver, the trade can be cut as the Euro ascends.JS
“Clear thinking, ability to stay focused, and extreme discipline. Discipline is number one: Take a theory and stick with it. But you also have to be open-minded enough to switch tracks if you feel that your theory has been proven wrong. You have to be able to say, “My method worked for this type of market, but we are not in that type of market anymore." Tony Saliba
"Time is your friend; impulse is your enemy"Jack Bogle