How to deal with huge announcement/news-swings

[Doggie52]

Hi everyone,

My first post here, so excuse me if this has been answered before. I have made an attempt to find the answer to my question but haven't been able to do so.

I'm currently running an expert advisor I built myself on a few demo accounts (with different parameters) as well as on one live account. I have been running this particular EA for the better part of the past 9-10 months or so with positive results so far. It trades EURUSD and GBPUSD on the 1H charts mainly.

One area in which this EA does not perform well is when the market swings violently back and forth such as what happens after major announcements or news (e.g. today's FOMC statement). As it trades with a trailing stop-loss, this is what usually happens just after an announcement:

1. Stop out current trade with a loss
2. Enters a new trade in opposite direction
3. Trade #2 stops out due to continued swinging
4. And so on...

The EA is intelligent enough to set a wider stop-loss after each stop-out but this is usually not enough to prevent the subsequent stop-out. I've seen this hit 3 stop-outs rapidly after each other, and you can imagine what that does to the results...

I realise that I won't be able to prevent this behaviour fully, but I'd like to mitigate it. I was wondering if you would be able to share some tips on how to deal with anticipated high-vol situations such as news and announcements? I thought of the following alternatives:

• Simply exit the trade before an anticipated announcement and resume trading afterwards
• Massively widen stop-losses just before the announcement and re-tighten them afterwards
• Enter an equal and opposite trade to hedge the movement, ignore SL levels and then exit this hedge afterwards

What do you think? Which is more effective? Is there anything you suggest I should do instead?

Thank you in advance for any help !

 

[piphoe]

I try to stay out around news. They use "news" as an excuse to run stops. Take a look at the EU today after FOMC.
They ran stops each way lol

Problem solved.

 

[Doggie52]

I suppose I could build into it some functionality to exit the market before an announcement and re-enter later. But if so, what does your experience tell you about the following things?

1. How long do post-announcement swings usually last for? Is, say, an hour enough time to let things calm down?
2. What if I instead enter a 1:1 hedge just before the announcement and exit the hedge after it, thereby "pausing" my trading during the announcement and, after exiting the hedge, "moving" my entry to the current market level. Is this a bad idea? Have I overlooked something? Is it better to just close my trades before the announcement and resume trading afterwards?

Thanks in advance for any help !

 

[mb325]

I don't trade automated but just my 2c...

I'm wary of putting on a new position within 15 mins of an event like FOMC/NFP. However, if I have a position on and it is showing a profit then I will look to get my stop as close to breakeven as possible, whilst giving the trade room to go my way if the data obliges. If it's showing a loss I will try and get my stop tighter than the original but always behind a level of potential support/resistance as that's how I trade. I find that these events offer the chance to earn superior returns in a day so it's always good to at least give yourself a chance to capitalise on that. Of course you run the risk of slippage but I think the risk/reward is normally attractive.

You also have the issue that the importance of these events can change over time which should affect how wary you are of trading them. E.g NFP is losing its importance as we approach lower levels of unemployment, inflation and wage growth are becoming increasingly key, and I would be much happier running a position over last night's NFP when it was almost guaranteed rates would remain unchanged and the only thing you had to worry about was the dovish/hawkish language lean.

With regards to how YOU should play it, I think it depends on how your system trades. Cutting the position and re-entering after is the safest but obviously means you could miss out on a big move, and your system might not give you the re-entry signal.

Widening your stoploss again is an option but you run the risk of taking a hit to your account multiples of your original risk.

Entering an equal and opposite position does not make sense to me. It's the same as cutting the position and re-entering after but just guaranteeing that you will open and close two trades, rather than the cut/re-enter which is potentially just one trade - it's an added cost for no benefit as I see.

There are no cut and dry rules for how long post-number swings will last but I would say 5-10 mins after an announcement it will have settled down (you could always tie your algo to trade under certain liquidity conditions such as the tightness of the spread or the amount on the bid/offer etc.). Again this depends on the announcement though, sometimes there is a press conference 30 mins after the FOMC announcement which will continue to create swings, and with numbers like NFP there is often a fair amount to be digested in the breakdown & revisions which could take some time to filter through.

 

[Doggie52]

I don't trade automated but just my 2c...

Wow, man, people like you are the reason I went from lurker to registered member. Thank you so much for your insightful response! And I agree with you it makes more sense to cut and re-enter -- after all, with current backtests, I can see that I always lose at least once after an announcement, meaning that if I cut, I'm almost guaranteed to lose less than I would have otherwise.

Another question, how would you go about identifying future major swings? You say "an event like FOMC/NFP" but what other types of events do you consider "risk-events" as such? I presume ECB announcements fall under that category as well as Yellen speeches?

I've worked out the following filters (attached) on Investing.com's calendar -- what do you think?

 

[mb325]

Ok a decent place to start is the calendar at forexfactory, there's a filter in the top right corner, I would not worry about anything other than red events in USD & EUR, and even most of those I would not be too worried about as they will typically set the tone for the following few hours but won't necessarily whip you around too much. Yup ECB annoucements/BoE announcements and Yellen speeches are worthy of keeping an eye out for!

Again this really depends on how your system trades, maybe you could keep notes for a month or so on how price reacts to the various 'red' events and this will give you an idea how much each can affect you.

 

[Doggie52]

I will definitely keep an eye out for how much "red" events swing things around and what type of "reds" usually do this, but I get the feeling that it's mostly CB-related stuff that can cause these things.

Thank you again for your insightful reply! I really appreciate the support. Designing a system can get quite lonely..

 

[NVP]

2 rules

Attack them
Avoid,them

That's it ......you either are a hunter or a hider when it comes to news

N

 

[NVP]

I suppose I could build into it some functionality to exit the market before an announcement and re-enter later. But if so, what does your experience tell you about the following things?

1. How long do post-announcement swings usually last for? Is, say, an hour enough time to let things calm down?
2. What if I instead enter a 1:1 hedge just before the announcement and exit the hedge after it, thereby "pausing" my trading during the announcement and, after exiting the hedge, "moving" my entry to the current market level. Is this a bad idea? Have I overlooked something? Is it better to just close my trades before the announcement and resume trading afterwards?

Thanks in advance for any help !

The market will tell you when things are returning to the norm......traders must just learn to observe it correctly.....:smart:

N

 

[NVP]

Ok a decent place to start is the calendar at forexfactory, there's a filter in the top right corner, I would not worry about anything other than red events in USD & EUR, and even most of those I would not be too worried about as they will typically set the tone for the following few hours but won't necessarily whip you around too much. Yup ECB annoucements/BoE announcements and Yellen speeches are worthy of keeping an eye out for!

Again this really depends on how your system trades, maybe you could keep notes for a month or so on how price reacts to the various 'red' events and this will give you an idea how much each can affect you.

Ff have a good calendar......most sites do now ........the point is news is good......we as traders need this oxygen to boost the market activity and give us opps,to,trade......

I tend to steer clear of the immediate release.....but am then solid on my indicators looking for opps to trade the post news action......playing the news pre even is frankly gambling as you don't know,the outcome at that point

Sure,some events pre release can draw out early moves nicely ......but get out before the announcement.....or be locked and loaded

And I need as much information and knowledge in my camp to be trading as possible at all times :smart:

N

 

[tomorton]

Very few timetabled news announcements have triggered the end of a trend for us longer-term traders. In fact its a challenge to look back on a dailies charts and spot by eye only, without the aid of the key, when events like NFPRs and interest rate decisions etc. occurred. Usually, on this scale, they generate slightly wider daily ranges but confirm the existing trend.