8th November was a tumultuous day for the US politics as well as the currency market. It has been a wild day for both USA and currency market. Most pairs had a whipsaw day and are now standing almost where they had started. Markets are confused just as we are confused on what happened. Hillary Clinton won the popular vote but Donald Trump has won the electoral vote. So he wins the 2016 presidential elections. Right now people in USA are protesting in some cities as reported by CNN against the electoral win of president elect Donald Trump. Markets are upset just like use. Markets are just us people and reflect our emotions. Just like we change our opinions from moment to moment, markets also change their sentiment. At one point you will find the market bullish and just a few hours later you will find the same market now bearish.
News trading can be very profitable if you know how to do it right. The trick lies in keeping the risk low and taking a big profit. Did you read the post on how to trade NFP Report and make 150 pips in 1 hour? In this post we will discuss in detail how we traded the US Presidential Elections. Take a look at the following USDJPY H4 screenshot.
FBI clears Hillary Clinton of any charges on her email inquiry on Sunday. This is taken as a bullish signal by the market and on Monday, USDJPY opens with a huge gap up. The market is bullish on the morning of 8th November when the voting starts and expects Hillary Clinton to win. The voting ends and results start pouring in. Trump starts to win. USDJPY falls 400 pips on the news of Trump winning the elections. Watch the videos that explain how the banks manipulate the currency market.
This was the Trump Rollercoaster. Markets now think afterall Trump will be good for them. So a rally starts and currencies and stocks go up. Not everywhere of course. CNY the chinese currency fell to a 3 year low on Trump win as Chinese believe he will be not good for them. Mexican peso MXN also fell hard. Overall the richest people in the world lost $41 Billion as a result of Trump winning US Presidential Elections as reported by Bloomberg. Watch this interview of a mathematician who became a billionaire hedge fund manager.
USDJPY Sell Trade
Let’s go to our trading. We always believe in taking care of the risk before we open a new trade. So we placed a pending USDJPY sell limit order 105.440 with the stop loss at 105.540. The risk is just 10 pips. Take profit is 200 pips. Just by looking at the daily and weekly chart, we planned this sell trade. The highs and lows made by a weekly or a daily candle are good entry points. Most of the time markets will respect them. Sometime they don’t respest them and breakthrough them. You never know.Watch this video on a top swing trading naked price pattern.
Trading is all about making a well informed and educated guess. When you are guessing it is always a good idea to keep the risk low. 105.532 was the high made by USDJY 2 weeks ago. USDJPY is going up. Knowing that USDJPY loves to test old resistance levels before it falls hard, so we placed this sell trade close the high made by the weekly candle one week back. The risk was 10 pips. This was the most we want to lose.
Always take risk management very seriously. We never risk more than 1% on a single trade. The expected reward/risk for this trade is 20:1 which is excellent. So we opened the trade with 1 standard lot on a $10K account. 200 pip profit target was achieved. Infact price fell 400 pips and found support at 101.195 before the rally started. Fibonacci levels don’t work when the market is moving fast. But candlestick patterns do work. They are great in depicting market sentiment at any point of time. There is an art to trading these candlestick patterns as most of them are imprecise and vague. You need experience to know which pattern is significant and which is not.
EURUSD Pinocchio Bar Sell Trade
The second trade that we opened was EURUSD. Take a look at the following screenshot.
In the above screenshot you can see EURUSD first rallied hard on the news of Trump win. Then it fell like a stone. We placed a EURUSD sell limit order with entry at 1.12900 and stop loss at 1.13000 when a bearish pinbar also known as the Pinocchio bar was made. Take profit target was 1.10000. This trade had an expected reward/risk ratio of 29:1. As always we never risk more than 1% of the account equity on a single trade. So we opened the trade with 1 standard lot on a account with $10K. Profit target was easily achieved. Right now EURUSD is trading at 1.09500.
The trick in news trading lies in keeping the risk low. Sometimes the broker widens the spread. When the broker widens the spread, it is always a good idea to avoid opening the trade with a widened risk. 10-15 pips is what we love to risk. You can always enter a buy/sell trade with 10-15 pips with a pending order. Never use market orders. This will always increase your risk. The worst thing that can happen is stop loss getting hit. You only lose 10 pips. The second worst thing that can happen is your trade not getting filled. You don’t lose anything. Our trading strategy now focuses on how to make 100-200 pips with a small stop loss of 10-15 pips using pending orders.
How To Use Machine Learning And Artificial Intelligence In Trading?
You don’t need to watch the charts continuously. Always use the the weekly, daily and H4 charts for analysis. When you have analyzed the chart, you should decide how you are going to open the trade with a pending order. Once you have the pending order in place, the trade becomes set and forget. So you don’t have to spend time on the charts too much. Just focus on your market analysis. This is what will help you in the long run. One method that is now getting more and more popular is the increasing use of artificial intelligence and machine learning in trading. Did you read the post on how to use vector autoregression in trading. Predictions are by training neural networks. Neural networks is a fascinating topic. You can read this post that explains how you can use a neural network in predicting the weekly and the daily candle. There are a number of machine learning algorithms that can help in trading. Markets are dynamic. Just like I said in the beginning, market can change from moment to moment. So what we need is a dynamic trading system that analyzes the market from moment to moment in real time and generates buy and sell signals. EURUSD sell trade developed when we spotted a Pinocchio bar. This was the start. After that the market fell big time. But it was not must that the market fall 300 pips. It could have reversed after 150 pips. So we need to develop an expert advisor that can analyze the market in real time and make decisions accordingly. Stay tuned for the next post in which we explain how to do that using machine learning and artificial intelligence.