I recently ran a live online classroom session for traders all over the world and showed them how Wall st traders trade the news online. I recorded it and if you would like to view the video you are welcome to click the link below. Or you can simply read a transcript below. Please tell me what you think of this blog post or if you have suggestions for other traders based off your own experiences please leave them for others to see.

http://www.omnovia.com/movies/livetraderglobal/44776

What we are here to talk about today is essentially a topic that I get asked about all of the time and I know that the traders in the trading room get asked about this question all the time as well. So let’s talk about it and let me share with you my experience trading the news and being around successful institutional traders and how they do it.

What we will cover is how they trade the news and give you some tips and information on how you can start trading the news that really mimics the way that institutions and bank do.

Now its important that I tell you that the information that I’m going to provide for you is my honest assessment of the way that bankers and institutional traders that i’ve been around trade the news. I am not saying the advice here the absolute holy grail of trading the news, but it is a very logical way that banks and institutions trade the markets when the news comes out. So what I am going talk about shortly is essentially a few different steps, and the best advice that I can give you right now is grab a pen and paper, and jot some notes down because there is going to be some practicing at the end of this session if you want to start learning how to trade news.

When an institution and a bank is trading the markets there is a bit of a misconception amongst traders around world that banks and institutions have secrets about the way they trade the market, and they’ve got access to things that normal mum and dad traders don’t have access too. That is true to a certain degree but really there are no secrets, and there’s definetly no secrets to trading success or trading the news for that matter. But if there is one trading technique that is quite challenging for a lot of people it is learning how to trade it is the news. But when you get it right over time it can be very financially rewarding.

Trading the news does take patience as you need to gather your trading team who you’re going to trust and listen to for you.  If the banks or the institutions have a secret or if they have something that they don’t share with others is this.  As an ordinary trader around the world you could never ever hope to make the same returns that banks and institutions do trading the news because you simply don’t have the resources and instant information that you need to trade the news and trade it profitably. The people that you hear on the street, traders on forums, chatrooms, and around the place will say they make money trading the news, but  I can pretty much promise you that a lot of the time it is luck. A lot of the time they just happen to be catching the news announcement at the right time, but what I am going to talk about today is how the logical process works, that many big bank traders use to trade the news and at the end of this blog I am going to talk about how you can potentially start to develop your own trading team to give you the advice on how to trade the news.

Now as I’ve said before, if banks have secrets or trading systems that you don’t have access to it is not things such as charting or the ability to see when the news is coming out or even what that news might be, what they have is a team of people around them, people that give them instant information and the way in which the banks will decide to trade the news is generally off high important news announcements.

This is my point number 1, you need to write this down, point number #1 is most major banks and institutions will look to trade a news announcement when it has high priority in the market place and we are going talk about where to go and find the high priority news announcements shortly and what those news announcements are, but right now all you need to know is that generally speaking they will look for the high priority news announcements.

What they are looking to do is this!  They are looking to exploit the news announcement if the news happens to be different to the expectation. For example, a couple of days ago the reserve bank board met and decided that they were going to keep interest rates on hold in Australia. Now if you haven’t been watching the news or even if you are not a trader, if you live in Australia you would have been expecting that interest rates were on the rise.  Now as a currency trader, that is a golden opportunity.

In the latter part of last year the Australian Federal Reserve decided to put interest rates up after an extended period of dropping them and it was a very very unexpected announcement, everybody expected for rates to be either on hold or maybe up a quarter of a percent.  They actually put them up half a percent therefore it was an unexpected news announcement. Therefore the traders at the institutions, banks, exploit it as it’s different to market expectation and they buy heavily.  If it is a news announcement that is not expected and it gives the opportunity to short the currency, they will do that instead.

A bank trader first of all will do their research and have senior economists and other traders who’ve been in the banking game for decades that know this market in and out and they will have a view on what is going happen. They will have contacts in places that you will never get access too and what they will be doing is putting their trust in these advisors as to what their expectations are. Therefore if these 3 or 4 people are saying they think rates are going to be unchanged and they are indeed put up or down it’s a great opportunity to buy or sell a currency.

Now when the announcement comes out we have an opportunity to do one or two things to place our order.  Let’s assume that the news is unexpected and it’s a buying opportunity.  There are a couple of different orders that traders will often use. A limit order or a market order.  For a market order they wait for the news to come out and place a trade once the news has hit the market. For a limit order they will put in orders above and below the market, so if the market moves suddenly they can then get set and entered into their position quickly. Of course there are limitations and dangers to putting limit orders in before the news come out because often the market likes to move in a particular direction before a news announcement and it may like to move in an upward direction and then all of the sudden the news comes out and the currency drops on whatever currency you are trading.  So it fills you in a long position and all of the sudden its heading the other way.  You’ve now got a situation where you are in a long position and the market is heading short and its completely bamboozled your trading opportunity and you end up losing.

My experience is that the people I’ve seen trade the news are on the ball and on the pace quickly when the news announcement comes out and usually use market orders so they don’t end up in the trap mentioned above.

There is a few things that you need to make sure if you are goning trade the news, you’re really up to speed.   Banks and institutions have got it hand over fists over everybody else, they have instantaneous access to when that news comes out and don’t ever be under the illusion that its anybody other than a major institution and banks that create big moves in the market.  They are the ones that do it, they are the ones that have the instant access and start buying and selling before anybody else.

Major institutions and banks talk to one another and know what each other are potentially going to do, particularly many of them in London.  They will start to buy and they will push the market in one way and people will think,  “oh its gonna go up” so they start buying and then they will head fake and send it the other way. They have instant access to live data feed.

The most popular instant access feed used by big traders is Bloomberg. Now for the average trader and excuse me for saying average cause you guys are not average, you guys are extraordinary for the fact you are just here and that you are having a go at trading forex.  Bloomberg is a very expensive platform to use as an individual, in fact last time I looked about 1500 dollars or more a month just to have it access, but it gives you the instantaneous data that you need to trade the news. That is of course chicken feed to a bank and it gives them  instantaneous news feed that is coming in, telling them all they need to know.

They use it for a number of things such as what major economists around the world believe will happen on major news announcements.  So #1  they are looking to exploit a difference in what is expected to what actually happens and # 2 they will trust a team of economists, whether it be on Bloomberg or in their banking institution or around their network of friends and traders.  They trust them as to what may happen and what they believe will be the expectation.  And finally #3 they have instant access to the data that is coming out.

Most of the traders that wait for the news to come out and then they place the orders, they will have big profit targets and very very tight stops, they don’t do what the average punter does and put in a big stop expecting it will go the other way, they won’t live in hope. There’s a tight stop and a big target, end of story and there are many many traders in banks that might only trade once or twice a week.

Usually when you look at websites such as www.dailyfx.com you can see the upcoming news announcements for the next week, it will be marked by a low, medium or high symbol. You only need to worry about the ones that say high.  Daily FX  might have that the view it is going to be X.  The question you need to ask is. Do you trust them?  Do you know they person who writes the news, do you know the person who’s put in that high, low or medium announcement on the website? Unless you do, you should get to know them.

So the point is, if you are going learn how to trade the news, you need to get intimate with a group of people, you need to get intimate with people that are in the know, not just some website that says  it could be this or that, thats not good enough. (that is not a slight on Daily FX they are a very reputable website for this info) You need to do the research and actually start to really find some people that are well respected and trustworthy on their opinions and that takes time to build that up for yourself.

At LTG GoldRock you are fortunate that our trading room director and the team here, we have access to those people and over the next few months we’ll start to share that information with you and we will look to trade some of those news announcements down the track. Now when that news comes out, remember you are going to use a tight stop and you are going to have a bigger profit target. So thats essentially the way in which banks and institutions look to trade the news announcements, the next key thing is what are you going to do? Because let me tell you that unless you take this seriously if you want to learn how to trade the news, theres a lot of money in it.

There’s big money in trading the news but as I have said before it takes practice and here are my few tips on what I think you should do if are interested in learning how to trade the news.

#1 Start out and just look around a few websites, www.daily fx.com or go to google and type in you market news or market moving news and find some websites and find some sites that have the consensus the same.  Generally speaking most of them will get it right when it comes to a high important news announcement. Such as unemployment data, GDP numbers, Non Farm Payroll in the US.  It’s not difficult to find those.

#2  Learn to see what is expected of that news announcement and then look around amongst the people you are starting to research and learn about what they think, what are the major players, the newsreaders  and the economists think. Do they agree with the person you are looking at on that website? Then form a team of people that you trust, that each month is likely to have the same opinion of the news that is about to come out. There will usually be a consensus, a number, either up or down, a specific number, of a quarter of a point, half a point or whether or not unchanged, whatever that maybe make sure that you have your team agreeing that thats what is likely to be expected. Now of course we don’t want it to match the news that comes out, you don’t want expectations to be that rates will stay unchanged and that it be unchanged, because if that happens usually the market wont move, it may jump up and down for a few minutes and all the punters will get in and out and most of them will lose money. You will sit on the sidelines when the news comes out and it says that it meets expectations, its when it doesn’t meet expectations is when you are going to trade.

#3 Where are you going to get your data from and where are you going to get your instantaneous information. Now there are a couple of places you can do that, you can wait for the news to come out on some websites and I think that would be a risky move. You could watch CNBC or you could watch Bloomberg on tv. Bloomberg on television is not the same as having a Bloomberg terminal on your computer or in the bank. Generally speaking the cheapest and quickest way to find out about those news announcements if you don’t want to spend any money and buy a live data feed, is by watching those channels because any high news announcements particularly Bloomberg they will usually have it instantaneously up on the screen.

So news announcements are a great way to trade but you’ve got to have the understanding of how it works, when it is unexpected, when you have your team of trustworthy advisors advising is expected and the instant data comes out, you place your trade, you have a tight stop and a big profit and just be careful about putting limit orders in place prior to the news.  I’ve been around the traps traders long enough to see that generally speaking in my view, and only again its my view, i’m only giving my view here, using limit orders can be a dangerous ploy unless you really know your stuff well.

Can you trade the news and make money?   Yes you can!  Is it more difficult and challenging than trading a chart and reading trades off a chart in my view, but you can do it?  The reason why I form the view that it is more difficult for the average trader to trade the news is because 99% of traders around the world that are trading forex never have the funds and resources to put that team around them and have the data at their finger tips when the news comes out.  There is another very important point I want to make and it is this.

Many of the small brokers and even some of the bigger ones will block out your platform when the news comes out, so when you are trying to get in and place an order there is no ability to trade. Why do brokers do that? Because they know that news time is a major opportunity for traders to make money so they will block out the platform for 10 or 20 seconds so you can’t trade.  Then the market moves and it’s too late, it’s already gone.  Many times the market may move 50 or 100 points in a matter of seconds and unless you are able to be on an execution platform that will execute that order quickly and instantaneously the profit opportunity is gone. So you need to make sure that when you are practicing trading the news you are watching to see whether or not your broker blokes the major news times.

Not allowing you to trade around those news times is frustrating. So if you want to trade the news  my best advice is that you take everything onboard and you practice for the next few months.  In fact I think you need to practice for the next 3 to 6 months and get it right before you start trading this market with any sort of decent dollar size. There is a lot of profit to be made in news but as you all know you can also lose money in this market if you don’t know what you are doing.

If you are willing to spend an hour a day learning to trade the news over the next 6 months I do believe you will find it is an incredibly profitable opportunity.

All Forex signal systems have wins and losses.  How can you ensure a signal system system or LTG GoldRock is not a scam and won’t blow my wallet? LTG GoldRock has many winning months some as high as hundreds of points of profits all delivered in an online live  trading room where you can learn and trade with us in real time.  But we highly value the “art” of trading and try and instill a solid training system in our traders with great risk management.

Tags: How Wall st trades the news, Trading the news