42# Reactive Trading
Submit by Janustrader 03/04/2011
(Strategy by Kathy Lien pages 144-146Day Trading and Swing Trading)
Pairs: Major
Long
1. Enter into a position 5 minutes after a major news report is released.
Rule #1 gives you a chance to make sure that there are no immediate
retracements. If a number is big, there will be more than 5 minutes
of follow-through.
2. Place a stop at the low of the news candle.
Rule #2 gives you a technically based logical stop. If the currency pair
manages to retrace back to the low of the candle when the news is
released, it indicates that the market doesn’t really believe in the
surprise.
3. Take your profit on half of the position when it moves in your favor by
the amount risked.
Rule #3 is to bank profits when you have them and play only with the
house’s money on the second half of the position
4. Trail stop on the remainder of the position by the 20-day SMA or set a
hard stop of three times risk.
Rule #4, using the 20-day SMA, allows you to capitalize on as much of
the move as possible.
Short
1. Enter into a position 5 minutes after a major news report is released.
2. Place a stop at the high of the news candle.
3. Take your profit on half of the position when it moves in your favor by the amount risked.
4. Trail stop on the remainder of the position by the 20-day SMA or set a hard stop of three times risk
Going back to the example of the Canadian employment report, a reactive
trader would enter the trade at 1.0015 with a stop at 1.0075 (which
is the high of the 5-minute news candle). As indicated in ,
USD/CAD consolidates for approximately two hours before finally breaking
down and hitting the first target of 0.9955 at 10:55 a.m. New York time.
The stop is then moved to breakeven on the second half of the position
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