Never Trade during Speeches

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Video Transcription:

Hello traders, welcome to the News Training Course on the fourth module what not to do. In this lesson, we are going to go through why we don’t trade during speeches and when we talk about speeches, we’re talking about speeches from Central Bank chairs like Janet Yellen and Mario Draghi. And the reason that we don’t trade during these speeches is that there is a lot left for interpretation, and we don’t have any solid data to base our trades on.

Trading during Speeches

Basically, speeches about monetary policies are very hard to trade because we don’t have any solid data of what the speech is going to be about. This means that during these speeches, there are no numbers released that we can compare to previous or historic numbers to assess a reaction from the currency impacted. Let’s take an example and let’s say that we are watching Mario Draghi’s press conference, and he’s talking about the future of interest rates in Europe. And this is not like, let’s say, a non-manufacturing PMI that we have the previous month’s numbers. We have the historic numbers so we can see the overall trend, and we have the number that is being released now.

With the non-manufacturing PMI, we can know for sure immediately where the currency is going to go. And with the actual speeches what we are going to hear our very vague ideas of where interest rates are going, for example. And this is why it’s very hard to trade because one single word in a sentence can change the entire perception of the market about the Central Bank’s feeling of future interest rates. What happens is that traders will try to interpret the phrases during the speech.

The most watched speeches are from Central Bank’s chairs like Janet Yellen and Mario Draghi. For example, they can make an implication about interest rates and that they might consider raising them in the future meetings without being really specific about it. And this is really being really specific about it because they actually don’t say that they will consider raising them in future meetings. What they will say is that in future meetings they might not be as dovish [SP] vis a vis interest rates, which means that they will pay more attention to them, and that doesn’t mean that they are going to consider raising them.

This is why speeches leave a lot to interpretation and the market reaction can actually be a very big.

So this will bring immediate boost to the market, for example, and this pressure will be short lived and absolutely not related to any solid data announced earlier. We have to be careful that, I mean, I do watch these speeches, but I don’t trade them because the risk to reward is not there. There are going to be moves, but they are going to be 20 pip move, maybe a 30 pip move because there is nothing solid to consider. They are always vague in what they say, and you can get whipsawed. This means that you can get moved to the upside when the boost [SP] come and then when profit takes place you are going to get moved back down meaning that you are going to be trading in a very choppy environment and this is not what we aim to do when we trade the news. But you absolutely need to watch those speeches because you will understand the overall view of the Central Banks for the economy impacted and the currency impacted.


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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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