How to Trade the Trade Balance

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Video Transcription:

Hello traders. Welcome to the news trading course and the third module, news that moved the market profitably enough for us to trade. In this lesson, I am going to show you how to trade a trade balance. And what I am going to do is am going to go first factory Economic calendar am going to show you how the trade balance is presented, how to read the numbers and then I’m going to go to the empty four platform, to look at the starting price action during the release.

Trade Balance Economic Calendar

Now, this is the first structure economic calendar and as you see I have filtered out everything but growth events, so I can have only the trade balance on this economic calendar. You can see that we have the Aussie trade balance and the U.S.D trades balance and what we are going to do is we are going to the historic chat of the U.S dollar or the United States trade balance.

As you can see we have had a trade deficit since 2007 and right here you can see that we have a huge drop in trade balance from the previous number of 35.9 billion dollars to a -51.4 billion dollars. This means that the United states imported a lot more than it exported from the previous month. So what we are going to do now that we know this is a negative number for the US dollar, we are going to try to sell the US dollar meaning that we are going to try and position our sales on buy trade on the Euro US dollar. So this is May 5 at 3.30 p.m. Let’s go to the empty four platform and this is the Euro US dollar on the hourly chart. We are going to go to May 5th to see the price action on during this release and I think it’s above here.

How to trade the Trade Balance

The actual release was at 3.30 p.m. So I think that this is the candle that I want to look at. At 3:30 p.m. it’s right here, okay? So I am going to use the one minute chart but since we are here on the five minute chart, what I’m going to do is I’m going to show… I’m going to look for some levels on the buy and sell side. Remember, that we need these are the levels we need to break in for us to get filled, either on the buy and sell side because we don’t know what is going to happen. We don’t know if the trade balance is going to be better than expected or worse than expected or better than last month’s or worse than last month’s, or if we are going to have a trade deficit or a trade surplus.

Now, these are the two levels we were trading right here, right before the announcement. This is the area we were trading at. This is the level that we need to break to the outside. I mean we already broken once but it’s a heavy level of support, that might be tested as resistance and of course the level that we need to break to the down side is the previous law because we are in an up-structure.

Let’s go the five minute chart and let’s go back to the time of the trade, and I’m going to put to a few minutes before the actual announcement. Just to have a barrier before of all the activities, before the event and after the event. Let me get rid of this square and let me go back to the hourly charge because we forgot to mark our targets to the upside and to the downside.

Trading the Trade Balance

To the upside we have a target right here, you can see that it’s a zone or a level of heavy support then was tested as resistance twice and to the downside. It sucks to use these levels because it is so close but this level is way, way on the south side so we actually need to use both, first level of profit taking and second level of profit taking and to the upside we only have one.

So this is what we’re going to do. We are going to go back to the one minute chart and look for our trade chart. Here is our chart and this is the trades that… these are the levels we were playing with. Remember these are the levels that we looked at on the 50 minute chat. Because we are on the one minute chart we can move them to the closest levels that need to break. The levels that need to break on the one minute chart are these lows. Okay? You can see that it has been tested as resistance once, twice then as support and if we have a good trade balance on the United States, we are going to try to buy the Euro US dollar, so we are going to try to sell, I’m sorry. We are going to try to buy the dollar so take a short position on the Euro USD. So we need to break with this side. But if we have a negative trade balance we need to break with this zone of resistance that was tested as support. Okay?

So these are two zones, remember you look for zones on the higher time frame but then you can modify them to the actual zones or the actual range on the one minute chart. Now, I am going to use a single, blue, horizontal line for the entries or for the pending orders. This is the pending order on the buy side and this is the pending order on the sell side. Of course, the stock losses on both sides are going to be around these levels because if we break back inside the range our trade idea is invalid on both counts.

So it is about a seven to nine pip stop lows on both sides. So let me just put the red, horizontal line for the stop loss. Because of the negative trade balance of the US dollar we are going to try to buy the Euro USD, because we have a devaluation or depreciation, immediate depreciation on the US dollar. Now, you can see that we get filled immediately. This scandal, our actual stop loss has to be here, I’m sorry. This scandal because we need the actual stop loss on the buy size has to go below the lows and the stop loss on the sell side has to go above the highs. That’s logical, we already know that.

So this scandal shows the extreme volatility during the release. This is the candle or the 3:30 candle, you can see extreme volatility during the release and we get filled but price comes back down but then we have immediate pressure to the upside.

When price starts to consolidate in this region we are going to more stops below the low. You can see the price broke with this high and then tested this high as support meaning the price might continue to the upside but we don’t know yet. But this is not a very strong consolidation zone so we are going to wait and see what happens. You can see that here we broke to the upside but this to one minute candle shows a lot of resistance at the 11605 area.

I think there are a lot of sellers and not just long position stake of profit right here. So what we are going to do when we make another low which is a higher low we are going to move all stops below the low. Okay? Because the profit target is all the way above up here. It’s an 84 pip take profit, profit taking level, which is kind of far away from our entry. So, we need to protect our position and as you can see here we get stopped out on our profit for about 23 pips.

And this is how you trade a trade balance and this is how you are going to protect and this is how you know which consolidations to trade or not.

And the same thing will have gone to the south down side and remember once you get filled on the long side, you need to delete your pending order to the downside.


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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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