A novice trader thought the market was a tonto. You put testing and optimization into it at one side and it starts coining money from the other side. Before using his new news-based strategy in real trading, the novice trader did a number of persevering and quicker-than-a-second tests and optimizations. He came to the conclusion that profits were bigger if he placed orders 2-3 before the news and removed them 2-3 minutes after.

A catchy-red, strong piece of news was going to be published — Interest Rate Decision from the US Federal Reserve. The wretched novice trader was eager to make a million and 2 cents on that move. The decision was accompanied by a report from Mr. Bernanke. As Bernanke was a serious guy, he kindda delayed his report. The market, which had drawn itself into a thin filament before the decision, continued to stay calm right after the moment of the decision.

Of course, the novice trader was not going to wait and simply removed the orders 2 minutes after the news. The novice trader thought that the US Interest Rate Decision was actually a worthless piece of news capable of stirring up neither the Wall Street, nor all the dollar-chained currency pairs, nor even the gray nether regions of Alan Greenspan and Paul Volcker who had devised the entire system.

10 minutes after the news, Bernanke finally showed up before the journalists and started reading his report. The market stopped breathing. All of a sudden, Bernanke declared that the program of federal support to economic activity would be soon shut down. The market unreeled a hundred pips right away, then 5 minutes later, after a slight pullback, a hundred pips more.

The novice trader, who had just assembled another solitaire game but kept an eye on the chart, first thought it was a malfunction. "The broker is acting flakey again," he thought. "The agent cut its liquidity, so the broker is acting flakey." The true sense of the terms "broker", "agent" and "cut its liquidity" became even dimmer when the novice trader measured the entire move on the chart for the last 5-10 minutes only to find out that it was well over 250 pips. That crucial moment the novice trader cursed once again all the inventors of miraculous strategies and thought that he was forced to make a stack'o'money on that as the moment was finally right. The novice trader opened a trade in the mainstream direction in two currency pairs — EURUSD and GBPUSD. "Well," he thought, "the two pairs would hedge themselves." The true sense of the term "hedge" came unstuck in the conscience of the novice trader as soon as the market pulled back for both currency pairs.

The novice trader did not panic. "Well, it is just a pulley back, the market will move forward soon again," he thought. "U wanna get it, u should risk it!" But the market was pulling back serious. "Damn the hedge," swore the novice trader. He quickly closed both positions with a negative profit and opened two other with a double amount in the opposite direction. As the novice trader really loved to catch on the wave, he had 1-minute charts open. The novice trader was unable to see that the moment he opened two opposite positions, the market reached the 4-hour resistance only to rebound forward in the mainstream direction initially created by the news on the Interest Rate Decision. So, 30 seconds after those 2 positions were opened, the market moved in the same 1-minute candle and made the negative profit of the novice trader grow even faster.

The novice trader finally pushed the panic button. "Damn it, man!" he shouted. "Damn all the news-based strategies now! Where is my money? I open a trade, and I get a huge minus right after. There shouldn't be any trade at all right after the news. There should be so many trades now but there is no news..." For 5 minutes more, the novice trader agonized. He did a number of quicker-than-a-millisecond tests in order to discover some other, more profitable parameters. But they only made it worse. Soon the balance became a zero. Blowing off the steam, the novice trader swore again, removed all strategies from the folder, shut down the terminal and went out to smoke in the balcony...

The morale of the story is simple. The market is not a tonto, so it cannot mechanically react to the ticking clock. The market is a live organism which depends entirely on the economy and behavior of the principal institutional players. What really happened, and how should the novice trader have acted? Bernanke's report might be a lasting piece of news. Serious trader look for meaningful declarations. They often interpret word symbols of the head of the US FedReserve. He used this adjective with the noun "increase" last time, whereas this time he used a different one. It was advisable to wait with the market. The thing is that this kind of market behavior cannot be defined by any strategy mechanics. The US Interest Rate Decision is such a rare kicker, that you would have to cancel a date with the truly loved girlfriend in order be ready when it comes out. It is strongly advised to be present in the market when such pieces of news do come out. Sooner or later one of the orders would convert to trade and make a quick profit.

Dear novice traders, stop chasing the price, learn to feel it instead and understand the market through news which moves it. You should develop intuition, learn when and why the market reacts to certain news in certain ways. Remember, the market depends absolutely and entirely on the news. The deeper is your grasp of the news, the more precise will be your market entries and the bigger will be your profits.
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