50 Pips Just Before the News

By: DailyForex.com

This morning (25 July as I write this) at 4:30am Eastern Time (9:30am UK time), the UK’s GDP figures were released, greatly affecting the GBP/USD pair.

Most would recommend not getting into a trade just before a major news announcement. But for those who are more adventurous, the chart produced a clear heads-up of an impending move, with a Pin Bar candle that I’ve written about in DailyForex here.

About 10 minutes before the news announcement, a bearish Pin Bar was produced on the 5-minute chart which lined up very well with the last major resistance on the same timeframe.

GBPUSD 72512

GBPUSD 2 72512

Entering at the open of the bar immediately after the Pin Bar, you’d have been in profit by 10 pips just before the news release. 10 pips doesn’t sound like a lot, but that’s 1:1 risk/reward assuming a stop-loss just above the Pin Bar.

You’d have several options at this point: Firstly, you could be happy with your 10 pips and exit your trade before the news announcement. Exiting a minute or less before a key news announcement though would have gotten you a higher spread and more slippage.

Or, secondly, you could have stayed in the trade through the news announcement because you’d have gotten a nice cushion due to your early entry. If you’d done that, the most obvious take-profit target would have been the next support level which was +50 pips away from your entry. The price hit that target within 10 minutes of the news release. More importantly, this represented 1:5 risk/reward ratio on the trade.

On a separate note, many believe that the Pin Bar was a sign of professional manipulation by brokers to catch other traders’ stop-losses prior to the news release. Maybe. But regardless of whether this is true or not, the market “tipped its hand” and showed the potential direction cleanly on the price chart. And whilst the fundamentals moved the market, the trade was setup due to a pure technical examination of the price chart.

In summary:

1. Pin Bars can provide early entries when you would not usually want to take a trade, for example, just before a news announcement.

2. As always, look for the Pin Bar to align to a support or resistance, or another key level, such as a Fibonacci level.

3. Even when fundamentals move price, you can trade using just the price chart.

I’m a retail Forex trader and I exclusively use Technical Analysis to trade. I believe that Technical Analysis offers the cleanest way to predict the future direction of price movements. The fundamentals and news create the market sentiment and emotions, and that in turn is reflected in the price chart. Your bet as a trader is not on the fundamentals – it’s on what happens to the price as a result of those fundamentals.