Trading news can be highly lucrative if you know how to do it right. If you want to make a lot of pips every month, you need to master the art of news trading. For example, last week Bank of England Governor in his press conference hinted that interest rate increase might happen sooner than expected. On this announcement GBP/USD jumped up 200 pips in a matter of hours. Take a look at the following screenshot of GBP/USD H4.
GBP/USD H4 chart is showing bullish hidden divergence (two yellow lines). Just look at the candlestick formations above the red arrow in the screenshot. The BOE Governor press conference is some 40 hours away. A fractal pattern has formed. Both the bullish hidden divergence and the fractal pattern is an indication that the uptrend is resuming and the retracement is over. Now let’s add the fibonacci tool as well. Take a look at the following screenshot.
The price has bounced off the 61.8% fibonacci level. When price bounces of 61.8% fibonacci level, it is a strong signal that the retracement is over. So we have 3 confirmations in this case.
1. Bullish Hidden Divergence
2. Fractal Pattern
3. 61.8% Fibonacci Level bounce
We decide to enter into a long trade. Take a look at the following screenshot.
We enter into a long trade around the red arrow close to 1.67720. The stop loss is just 2 pips below the recent most significant low at 1.67360. Our risk is 36 pips in this case. On the interest rate increase announcement, GBP/USD jumps more than 200 pips. We got out at 1.69838. 1.69965 is the price level where GBP/USD had found strong resistance in April. So we close the trade for a profit of 211 pips. In just a matter of 2 days we have made more than 200 pips. Our risk was 36 pips so out reward to risk ratio is almost 6:1 which is very good.
Trading news is not difficult. The market works on the principle of expectations. When market expects good news, it incorporates that expectation into the price hours before that news. In this case, market was expecting Bank of England Governor to make an announcement to increase the interest rate. So many hours before the announcement you saw the market showing all the signs that it is going to move up. Whenever there is an interest rate announcement by a Central Bank, expect the market to move big time. This is precisely what happened this time too. With some practice you will be able to become an expert at news trading.