The initial release of news about current events often directly and substantially influences the prices of stocks, commodities and currency pairs. Many financial markets traders who trade economic data releases wait until the market exhibits a consolidation pattern like a trading range just ahead of the anticipated release. This price behavior suggests that traders remain undecided ahead of the release before jumping into the market in an appropriate direction afterwards.
Once the news comes out, the news trader watches for the market to break out of its previously observed consolidation pattern. They then initiate a position consistent with the direction of the consolidation pattern’s breakout.
The news trader typically puts their stop loss at what looks like a safe point beneath the breakout level. If the consolidation pattern was a triangle, then they would measure the initial width of the triangle and project that distance from the breakout point to suggest a profit taking objective. If the pattern was a range, then they would use the width of the trading range to project instead.
Keep in mind that the markets can be exceptionally volatile when important news comes out as the chart below demonstrates. News traders should therefore approach the leaving of stop loss orders carefully since they can be subject to substantial slippage in such fast markets.
