Page 83 - Ultimate Guide to Currency Trading

A Scenario of Developing News

While you are scouting around looking for a CHF/HUF entry point, another news story might develop.
This one is about the economic and employment numbers coming out of the United States. The data is
announced and is worse than expected, which makes the risky assets of the world retreat. The U.S.
stock market will be affected badly by such news, as investors change their risk appetite to match the
developing news.

Things can happen fast in the market; riskier investments can fall out of favor. With
currencies, the AUD, SEK, and NZD will fall relative to the safer USD. If you do not

have a position in these pairs, this would be in a good time to pick up the risky sides
Essential of the pairs at a cheap price.

You would then change your focus from a long-term trade of CHF/HUF to a shorter time frame,
high-yielding currency risk trade. These high-yields, high-risk trades are the ones that react positively
to good worldwide stock market gains. It is known that after a big news announcement and when the
stock market has a big reaction, there is a good chance that a few days later the market will change
direction for a day or two. This is due to the fact that traders in the stock markets of the world are
either bargain hunting or profit taking. Either way, the stock markets will eventually move in the other
direction: this is a wonderful opportunity to capture the gains by having a position in a high-yield,
high-risk trade.

In a bad news scenario, you would diversify your portfolio into three positions totaling 18-21
percent of your total portfolio. This means a combination of positions of USD/AUD, USD/NZD,
USD/SEK, and EUR/CHF consisting of 6-7 percent of the total cash value of your currency portfolio.

If the market were reacting to the news in a dramatic or negative way, these FX pairs would
also fall suddenly. Any down movement beyond 1.25 percent from the point the news was announced
represents a good entry point for these pairs. The idea is not to be precise as to entry points but
rather just to get the orders in before the market reverses (as this could hap-pen fast!).

After you have the orders entered, then go back into the "Modify Order" screen and place
your automated exit points, at 0.65 percent to 0.75 percent profit points. This will assure a good, fast
profit from the trade. Then, walk away. Take the rest of the day off. Have a cup of coffee with your
significant other, or play with your kids at the park. Your work is done. Let the computer finish up for
you, as you have entered into a fast-turnaround trade and you have used automated trading to take a
profit and to ensure the exit trade is executed at the right time.

This is a fine example of looking for setups, keeping ahead of the news, and, in the end, being
flexible enough to jump on a chance to make a solid profit when a new, quickly developing news story
and FX pair comes into play.