Why most news traders fail?
The market is volatile, the candlesticks move up and down like a yoyo and the prices changes dramatically in a split second. In a normal day you might struggle to place a few profitable trades. You will analyse the market, you will test your trading strategy over and over again just to have a couple of profitable trades. But if you choose to trade during volatile times the reward will be much higher but it does come at a price.
Many traders decide to adapt their trading strategies and to adjust their automated trading systems during news times. They optimise their Expert Advisors and use a VPS to improve the speed of the execution and minimise delays to open and close trades. The market can move 100 pips north or 100 pips south in a split second. It is up to the trader to catch as many pips as possible during that movement. But is it actually worth taking that risk?
Many argue that if you are very familiar with a specific market then you have a good chance for your trading strategy to succeed. You can easily perform fewer trades and make a greater return, but does it always work?
Let’s assume that you trade the major pairs and you follow the economic news as well as the analyst forecasts. When important economic data is released your system is designed to place trades according to the outcome of the news. You mastered this technique and as your experience grows you are becoming better and better.
Everything goes to plan but you have noticed there is often slippage, order delays and the spread widen requiring you to make greater gains just to break even. In fact in many cases you lost money even though you traded in the correct direction and sent open and close requests at the correct times. You complained to your broker about the slippage, execution delays or for anything else that may have affected your trade but you always get the same answer. They blame the market. At that given time the liquidity providers were constantly executing orders and the difference between the supply and demand for the specific pair was too. Your order was executed at the best available price in the market and not necessarily the price you saw on the charts. You can’t win. You have predicted the correct movement of the market but have not received the profit you should have been entitled to. You find it hard to blame the broker because the broker blames the liquidity in the market and you can’t blame the liquidity in the market because you don’t know who is responsible. After all of this you might adjust your strategy or even switch broker but no matter what you do your winning strategy never works like it does on a demo account.
What about the crash of the EURCHF in 2015 following the SNB’s surprise move to scrap the EURCHF floor when they changed the interest rate. The market moved so fast that no one could withstand the shock. Those who had anticipated the opposite movement got stopped out immediately and in most cases the movement happened so fast that the stops kicked in too late resulting in many accounts ending up with negative equity. Do you think that such a movement won’t happen again? Is it worth taking that risk and potentially losing your entire investment in just a few milliseconds? I believe not.
We always analyse our trading decisions according to our appetite for risk and the risk-reward ratio we have calculated. History tells us that we cannot rely on any specific strategy and this is especially true during times when the market is highly volatile. What used to work 2 years ago does not work anymore and we need to adapt to the changes that have occurred in the market. Make no mistake that news is for traders that wish to take good returns in a relatively short period of time but are willing to take excessive risk to do so. I would say new trading is more like gambling and the odds are stacked against us.