Trading Currency After News Spikes
Today we have a classic example of a news spike. We can see a huge decline in the Euro against the USD, from highs in the region of $1.5490 all the way down to $1.5280. That marks a fall of around 210 points in only a matter of a few hours.
However, notice the 55-day moving average remains relatively horizontal despite this large spike in price. News traders who enter trades the split second news data is released can catch these large runs. However, there is room for profit for non-news traders as well.
By viewing the EURUSD across several time-frames we are able to get a better picture of what is happening, and thus predict what will happen.
To start with, we can look through a selection of currency pairs, looking for news spikes, then when we have established a pair which matches our criteria, we need to check a few other parameters.
Firstly, the 55-day moving average needs to be virtually horizontal (not bending up or down too much, image shows an example of a fairly flat moving average line).
We then need to check the stochastic in the 15min, 30min and 1hour chart to see whether we are overbought, oversold, or in no-mans-land.
If all three agree, for example that we are oversold (as in the example image) we can await a ‘buy’ signal for that pair.
The best signals are after news spikes which break outside the Bollinger band. Because 90-95% of price action is contained within the Bollinger bands, a break suggests there will be a bounce back to within the Bollinger band, if not a complete bounce to the other side of the Bollinger band.
With this in mind we can wait for the price to move up back into the Bollinger band from breaking (or nearly breaking the top or bottom line). Our target is the 55-day moving average which should be lying virtually flat.
By using the 55-day moving average as our target we can quickly calculate our risk:reward ratio and decide to enter or stay out.
As with any technique, there is no perfect system, but in flat, ranging markets this technique can pick up anywhere between 10-100 pips in only a few hours.
A more detailed explanation will be published on Finance Exchange soon.
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[...] signal for news traders. For non-news traders probably worth staying out until after, and using the Bollinger band spike method discussed a few days ago on this [...]