Should You Close A Trade Before A Big News Event?

It all depends on two variables; what type of event it is and what type of trade you have taken?
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We just have a quick question here from Tumelo, asking whether they should close a trade before we have a major news event coming up. So, thanks for this question Tumelo. The answer is a little bit tricky because it really does depend on a couple of variables, two actually.

The first one is what type of event you are waiting for. So if it’s just a low expectation event, something like, in today’s session was a good example, we had CPI for three major economies. We had CPI for the UK, the EU as well as the XAG but given the current sentiment, these were really low expectation events in terms of the outcomes.

So if it’s these types of low expectation events, then you could consider taking a trade in the morning, maybe even before the event, if it’s scheduled in the afternoon.

However, if it’s a highly anticipated and more important event, like a very important central bank meeting or highly anticipated economic data point, then you’re probably gonna be better off waiting for the event to play out before you take a trade, unless of course you are planning to trade into the event, but if that is the case, then arguably you would have already been in the trade way before that.

Also keep in mind that U.S. data will of course be important for all the currencies because the dollar is so important, major events for the U.S. might affect something like the Aussie Yen, for example, if it’s a good enough, if it has a big enough impact in terms of the overall risk flow. So definitely something just to keep in mind.

So the type of event’s very important. And, if you want to know which of events are highly anticipated every single day, then you really don’t need to go much further than the terminal because we provide that info every day in the terminal, in our daily risk event outlook report.

So these daily risk event outlook reports, it’ll show you whether there are any very important events coming up and we’ll prepare you on which things to look for and which things to expect from these events.

Of course, we also run through them through the day in our video commentary, as well as the daily video webinars. Now, what about those events that might be market moving, but they are not expected to move the market.

So, as traders, like the CPI’s we had today, as traders we need to be aware of these upcoming upcoming events, during the day and how they might impact the markets, even if we don’t think it’s gonna have a massive impact, we need to be prepared in the case that it does have an impact, coming in with a very huge deviation. So let’s take yesterday’s retail sales as a good example. So let’s open up our risk event report from yesterday for retail sales.

Now we highlighted retail sales yesterday as the main economic data point for that day. And where we can see that we highlighted it, or we hinted that a beat above the market’s maximum expectation would feed into the risk on flows that we had in yesterday’s session prior to the event. And, if we just quickly take a look at the retail sales numbers, how they actually came in, they came in way above the market’s maximum expectation.

We had that big jump to the upside that V-shaped recovery looking chart. And that is exactly that we highlighted as a potential thing to watch out for, is any type of V-shape looking rebound, could spark for the risk on flows. And of course, if we just look over to the equity markets in yesterday’s session, that move to the upside, that spike to the upside that we had was on the back of that retail sales data.

Now, yes, it was short lived because directly after that we had the new case numbers coming out and that saw some downside in the equities, but if we didn’t have the case numbers basically spoiling that outlook that would’ve seen further moves to the upside in terms of risk sentiment.

So in the example of retail sells, it’s not like we expected the numbers to come in way above the market’s maximum expectations, right? We didn’t expect it to print at these massive numbers. There was no way of knowing how the data will come in ahead of time. But rather the important thing is that we were prepared for it, if it did happen.

So always be prepared and have a game plan, in case it does deviate substantially.

The second variable to consider apart from the type of event is the type of trade that you’re taking. So whether it’s a scalp and intraday trade, where they’d say swing trade, if it’s a swing trade, then waiting for the important event might be good, if the event has the potential to change your entire macro fundamental bias, like a central bank meeting.

But if it’s a data point that might not, it might cause some volatility, but it won’t necessarily change the overall buyers like today’s CPI events, for example, in this current context, these ones shouldn’t have been a game changer for you to take a swing trade, for example.

If it’s a day trade again it’s gonna come down to the type of event that you’re trading, when you’re facing major events, rather keep your powder dry. Like if it’s NFP, like tomorrow, for example, we have the BOE coming up in the London session, so ahead of that right now, where we’re sitting, getting closer to the end of the London session, I’m probably not gonna look for a trade on the pound right now until we get that BOE meeting tomorrow, unless there’s something substantially that happens between now and before the event in terms of Brexit to keep in mind.

So, if it’s a day trade, rather keep your powder dry. It’s a major event. If it’s not gonna be a major one, like retail sales, it was an important one to keep in mind yesterday, but again, we didn’t have expectations for it to reach that level. If it did, obviously we had a game plan for it to jump on it and trade it accordingly.

But if it’s a, just like CPIs for today, it would have been fine to open a day trade even in the morning waiting for these events to transpire. So yesterday, for example, we had those risk onflows after retail sales beat way above markets expectations, but we also highlighted in our videos, apart from the daily events, we needed to watch out for that second wave case number. So apart from just the scheduled events, we’ll also go through the potential unscheduled events that we need to watch out for.

hat can obviously also be important on whether you should or shouldn’t take any trades. So it’s always just be mindful of those variables. What type of events are coming up, what type of trade you’re looking to trade. And that should give you an idea of whether it’s good to rather stay out of the market or close a trade before you reach or head into those economic data points or main events like a central bank meeting.

So I hope that helps with your question Tumelo. It really does come down to you to those two variables. But if there’s any other questions, please don’t hesitate to let us know.

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