FOREX STRATEGY 6: BALK THE TALK

BALK TALK STRATEGY

Fear is a greater driving force than pleasure. Humans tend to react more  drastically in times of fear, or when they are presented with bad news. Fear is also  the emotion  that drives traders around  the world  to watch every single news announcement, for fear of missing out on key information.

Fear also results in sell-offs. Whenever there is bad news, the first reaction of traders is to sell. This is precisely why I mentioned in Chapter 5 that trading the news is one of the best ways I know of making good profits in a short time with bearable risk, especially since you can make a profit from either buying or selling.

Let’s see how bad news  can become profitable news  for  traders  like you and me.

Time Frame

Balk the talk works with the 15-minute (M15) or 30-minute (M30) candle.

This means that each candle on the chart represents 15 minutes or 30 minutes of price movement.

 Indicators

No indicators are used for this strategy.

Currency Pairs

This  strategy  is  suitable  for  all  currency  pairs  listed  on  the  broker’s

platform, especially the seven major currency pairs of:

EUR/USD

USD/JPY

GBP/USD

USD/CHF

USD/CAD

AUD/USD

NZD/USD

Strategy Concept

We use  either  the M15  or M30  charts  to determine our entries because  the news  is  usually  released  in  15-minute  intervals.  Examples  include  8  A.M., 9:15 A.M., 10:30 P.M., and 11:45 P.M.

As discussed in the Rule of 20, trades are taken by comparing the forecasted figures with the actual figures. For this strategy, we go short on the affected currency when actual figures are lower than forecasted figures by a minimum factor of 20%.

Since we trade in currency pairs, we focus on pairs which feature the U.S. dollar in either the base currency or counter currency. As an example,

if the news is a negative GDP announcement by Canada, we take a long trade on  the USD/CAD.

If  the news  is a negative  employment announcement by  the United States, we take a long trade on EUR/USD or a short trade on USD/JPY.

Long Trade Setup

We use  the Canadian  gross domestic product  (GDP) on M30  time  frame  for

illustrating a long trade.

Here are the steps to execute the balk talk strategy for long:

1. Identify the currency to trade the news (CAD GDP m/m).
2. Enter long on USD/CAD once the actual figure released is lower than

the forecasted figure by 20% or more. (See Figure 7.21.)

3. Set a stop loss of 20 pips from the entry price.
4. Set a profit target of 40 pips from the entry price. (See Figure 7.22.)

CAD GDP m/m on 31 Jan 2012

Forecast: 0.2%, Actual: –0.1%

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