Combining News and Charts in Forex

07/26/2012 8:45 am EST

Focus: FOREX

Huzefa Hamid

Senior Analyst, DailyForex.com

Huzefa Hamid, contributor to DailyForex.com and co-founder of The Forex Room, highlights a recent example of how he combines technical and fundamental signals to find profitable currency trades.

Yesterday morning at 4:30 a.m. Eastern Time, the UK’s GDP figures were released, greatly affecting the GBP/USD pair.

Most would recommend not getting into a trade just before a major news announcement. But for those who are more adventurous, the chart produced a clear heads-up of an impending move, with a Pin Bar candle that I’ve written about previously on MoneyShow.com.

About ten minutes before the news announcement, a bearish Pin Bar was produced on the five-minute chart, which lined up very well with the last major resistance on the same time frame.

chart
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chart
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Entering at the open of the bar immediately after the Pin Bar, you’d have been in profit by ten pips just before the news release. Ten pips doesn’t sound like a lot, but that’s 1:1 risk-reward, assuming a stop-loss just above the Pin Bar.

Next: Several options for you...

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You’d have several options at this point: First, you could be happy with your ten pips and exit your trade before the news announcement. Exiting a minute or less before a key news announcement, though, would have gotten you a higher spread and more slippage.

Or second, you could have stayed in the trade through the news announcement because you’d have gotten a nice cushion due to your early entry. If you’d done that, the most obvious take-profit target would have been the next support level, which was 50 pips away from your entry. The price hit that target within ten minutes of the news release. More importantly, this represented 1:5 risk-reward ratio on the trade.

On a separate note, many believe that the Pin Bar was a sign of professional manipulation by brokers to catch other traders’ stop-losses prior to the news release. Maybe. But regardless of whether this is true or not, the market “tipped its hand” and showed the potential direction cleanly on the price chart. And while the fundamentals moved the market, the trade was setup due to a pure technical examination of the price chart.

In summary:

  • Pin Bars can provide early entries when you would not usually want to take a trade, for example, just before a news announcement.

  • As always, look for the Pin Bar to align to a support or resistance, or another key level, such as a Fibonacci level.

  • Even when fundamentals move price, you can trade using just the price chart.

Huzefa Hamid is a contributor to DailyForex.com and is the co-founder of The Forex Room.

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