How an event plays out in the headlines and the charts
Ryan Littlestone wrote a great post on how he was able to trade the news and benefit from it (Today’s oil moves is a timely reminder of how to trade the news). Ryan was able to profit on a oil trade by seeing a tweet about a pipeline explosion, interpreting the news, putting on a trade and then getting the kick from the news making it’s way to the main news sites. What made it even better was oil has seen a lot of selling, so it was prime for a bullish news story. Great trade Ryan.
Of course being at the right place at the right time is important, and we at ForexLive do our best to pass on what we hear and see – as fast as humanly possible – along with trade analysis, so you can benefit as well (or at least know what is going on). These random events can turn the tide of a currency pair, commodity, equity or bond market. Hence they are important to know. However, they are not predictable. You need some good fortune, but if you pay attention to the news, you get these nuggets from time to time that work like a charm. Just ask Ryan.
What if you miss the news or don’t have access to it. What are you left with?
Well, you have yesterday’s news and analysis, and can make a judgement from it.
You also have the price and tools you can apply to that price, to determine a bias (bullish or bearish) and a RISK defining stop.
I was not watching the oil at the time that the news came out, or even looked at oil today before the event However, if I were focused on oil at the time, I would have seen the price moving higher and in fact making a move back above the a bottom trend line that was broken in yesterday’s rout to the downside. That level came in at around the 77.55 level.
Yesterday, I posted this chart and said the following:
Looking at the oil chart, the price fall below the lower trend line (currently at 77.77), keeps the sellers in control. Stay below and the dip buyers are still feeling the pinch.
The technical level was established from the chart. It became a line in the sand for bearish below/bullish above.
The oil chart from yesterday’s post talking about the break lower.
Fast forward to today. Before the headline rumors (or tweets), the price moved above the trend line at the 77.55 level. This turned the bias back to the upside for oil. For the trader focused on the charts, there was a reason to go long (or at least not be short). A stop could have been placed below earlier ceiling in the day and near the close from yesterday at around the 77.30 level. The trade is on with defined risk.
Oil shoots up and stalls at the 100 hour MA and 50% retracement level.
Then the random tweet happens and the price goes shooting up through the 38.2% at the 78.49 . The next target is the 100 hour MA (blue line) and the 50% retracement at the 79.18 and 79.30 level. Technical oil trader sells against the resistance area, and books the profit from 77.55 to 79.15. After all, technically, this is a key resistance level that should hold on the first test. The price should have a difficult time getting above the 100 hour MA AND the 50% retracement level.
Technical trader, later finds out that the run up was due to the headline rumor that there was a “huge pipeline explosion” and later after exiting against the 100 hour MA and 50% retracement, he found out that the explosion was from a “commercial diesel pipeline”. No terrorism. No disruption in oil supply. He had no idea about the news that Ryan profited on.
Trade the news. Trade the charts.
Each type of trader – the news focused one or the technical trader – requires an element of luck. Ryan was lucky to see the news and because he is the wily old experienced trader he is, reacted to it and made some nice dough.
Aware technical trader who watched oil, got lucky because he saw the price move above technical resistance, defined his risk against a level below, and then benefited from the random out of the blue event. He also got lucky selling against technical resistance on the topside.
Trading is a lot about putting the odds in your favor and getting lucky. How are you going to do that? One way is watching the news and being quick enough to interpret and trade.
Another way is to look for opportunities where you can define and limit your risk using technical tools and having “traders luck” when the market does what you think it should do – even if that move comes from some rumor/new that no one – including yourself – expected.
The oil headlines
