The Best News Events to Trade

10/02/2012 4:41 pm EST

Focus: FOREX

Rob Booker

Author, Man Vs. Market: Lessons from Trading on the Road

FX trader Rob Booker shares some of the strategies that he uses to trade interest rate reports that he feels offer better opportunities than the monthly jobs report.

Well, all traders are familiar with the Non-Farm Payrolls report and how important that used to be and how much it could move the markets, but there’s another reporting and another economic announcement that’s really shadowed that one now.  We’re here to talk to Rob Booker about that.  So, Rob, NFP used to be the economic announcement I would watch, but what’s replacing it?

When I started in the world of currency trading, the US trade balance report was like the most gigantic thing that everybody ever heard about, and it would move the market an incredible amount.  The last time I heard about the US trade balance report in the world of currency trading was like 2003.  Then the Non-Farm Payroll report took over and it became the Super Bowl of currency trading and equities trading, and it attracted all of the attention. 

It still attracts attention in all of these political races, but the actions of the central banks around the world now, the Australian Reserve Bank, the Bank of Japan, the US Federal Reserve, and the European Central Bank.  When these central banks release either their interest rate announcement or a monetary policy statement, this is moving the market much more in the short term charts and in the longer term charts and there is money to be made using strategies at those times that I think are far more productive uses of time than looking at the Non-Farm Payroll report.

Let’s talk about those strategies.  Give us a typical garden variety announcement and how you’re trading those announcements.

Does anybody…well, I’m going to tell you what I do.  Let’s say for instance, that the Federal Open Market Committee is going to release its latest round of interest rate announcements.  They’re going to release a press release to the public and then later on in the day they’re going to have a press conference.  They’re going to announce whether they change the base rate and then they’re going to say what else they might be doing.  This is like never before. 

We used to get an interest rate announcement, but there wasn’t anything else to listen to.  They are also now providing a deeper explanation that we can understand of what else they’re doing.  Are they buying mortgages from banks?  What I’ve been doing is watching this initial press release come out from Australia, the European Central Bank, and in particular, the Federal Reserve.  What you’ll see after this is an initial reaction that isn’t necessarily the one to follow.  Just one of the most recent three Federal Open Market Committee announcements on US interest rate policy caused the US dollar to go up temporarily on the short term charts. 

So I’ll watch this release on the five-minute charts.  All kinds of wackiness is going on.  It moves in both directions and is very volatile and it will move sort of in the wrong direction, so to speak, and I wait for that movement to play out.  I’ll wait five or 15 minutes and then you’ll see the market settle into this announcement.  React to it.  You’ll see the institutional traders make their decisions about what they’re going to do next, and what you’ll find is they’ll buy these currencies, the euro/dollar, the Australian dollar/US dollar, the New Zealand dollar/US dollar.  They’ll see these at a discount and then you fade the initial reaction. 

So you wait for that first five or 15 minutes to pass.  You wait for that initial reaction to play out and then you see the market start to creep in a different direction against that initial reaction and that’s the move I take.  I take it with a really tight stop loss.  Something no bigger than 30 pips, 30 points in the currency market and then I ride that thing for as long as I can hold on.  I sit on my hands and I hold onto that for at least 24 hours and as much as one or two weeks.

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