Positioning yourself as we head into a big news or risk event is similar to a high volatility news scalp except it’s a lot slower and you have more time to make a decision.
When scalping the news, Wayne has taught us to
1. Wait for the news release
2. Identify the direction of the market
3. Wait for a pullback
4. Trade in the direction of the market using a fib on a M1 chart. Once price has moved out of the fib zone, lock in the stop and let it run. Price will either breakout or pullback and knock you out at break even.
This high volatility strategy is a news scalp, we are all familiar with it because most of us met Wayne McDonell at the FXStreet NFP webinar. We can use a similar strategy before the release of a major news event.
On Sunday I uploaded an article about South Africa having a SARB MPC meeting this week and a rating review by S&P Global and Moody’s agencies. Just like a high volatility news scalp, we don’t know what the outcome of the news is going to be or how the market will trade the news until it’s release on the day, however with a news release of this magnitude (both the MPC and the rating review) we are able to see how the market is positioning itself as we head into the release. I would like to get into the trade before the release on Friday.
A lot of the time the smart money is already positioned before the release and when the news is released there is a lot of profit taking, which is fine because if we plan correctly and have done the necessary research of upcoming risk events, one could take advantage of both.
In my Sunday post, I outlined what Bulls would do and what Bears would do. What is my bias? Well, I am treating this like I would any central bank meeting (with a rating review added in for good measure) so I want to observe what the market is doing as we head into the meeting and move in that direction until the release. What do we do on the day? By then our trades should be in profit, stops either locked in at breakeven or in profit and the trade will either run further or knock us out in profit and we can then use a high volatility news scalp to catch the reversal from profit taking, if that’s what happens on the day. If the market continues in the original direction then we already in a trade (maybe several).
Note, some central bank trades are simpler than others – for example, the recent ECB and BOE meetings were not difficult to predict going into the meetings or at the release. Though sometimes we get what we have here. I often find that the market does not like uncertainty and risk and tends to mitigate that risk by getting out until there is clarity and an opportunity to get back in at a better price. There is a very good possibility that is going to happen with ZAR as we head into this risk event.
Below is updated technical analysis on EURZAR and USDZAR since my post on Sunday. I believe this bus is leaving today. I could be wrong, which is why you’ll notice detailed tactics for entering this trade – if you agree with my analysis. No setup, no trade.