In my previous blog post, I talked about how to trade the news with directional bias. In this post, I will talk about how to trade the news with non-directional bias. Non-directional bias stems from the fact that an important news report will create a big movement in the price. With a non-directional bias, it doesn’t matter which direction (up or down) the price moves; your goal is to have a plan in place to enter that trade once the price starts moving. There are 4 steps to successfully trading the news with a non-directional bias:
- When trading the major indices (S&P 500 or DJIA), always use the reports that are the most volatile. Historically, the most volatile news reports have been: Non Farm Payrolls (NFP), Trade Balance, Retail Sales, Federal Open Market Committee (FOMC), and Consumer Price Index (CPI).
- At least 20 minutes before news release, look at the range that the price has been fluctuating between. This will give you an idea about your support and resistance levels along with the breakout points.
- Breakout points should be your entry levels. Once price has crossed these levels, it’s time to buy or sell depending on the direction of the trade.
- Stop loss should be placed based on your risk tolerance. My recommendation is to put the stop loss somewhere within the range where the price was trading at in step-2.
- Target profits should be the same as the range of the breakout points. So, if your breakout points, which you found in step 2, are 30 points apart, then your target profit should be 30 points above or below your entry point.
The diagram below illustrates where you should place your entry, stop losses, and target profits in relation to the breakout points (support/resistance levels) for a non-directional bias news trading.
Hope you learned a little and found this blog post helpful. We talked about how to trade the news with a non-directional bias. Non-directional bias trading eliminates any emotions involved with placing trades. As always, you can sign up for our mailing list here. Like us on our Facebook page here. Thank you!
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