What is the News Bracketing Strategy?

🎓 PROP TRADING TERMINOLOGY

The news bracketing strategy in prop trading involves placing trades around the time of significant news releases 📊, with the goal of capturing the volatility that often accompanies such events 💥. This strategy typically involves setting up pending orders (both buy and sell) at key levels around the anticipated news release to take advantage of the sharp price movements that can occur 🔄.

How the News Bracketing Strategy Works:

1. Identify Key News Events 🗓️: Traders identify significant news releases that are likely to impact the markets. Common examples include central bank interest rate decisions 📉, employment reports 🧑‍💼, and major economic indicators 📊.

2. Set Up Pending Orders 📋: Traders place pending buy and sell orders at strategic levels around the current market price. These levels are usually just outside the expected range of price movement, based on historical volatility around similar news events 📈.

3. Risk Management ⚖️: Traders define stop-loss and take-profit levels to manage risk and lock in profits 💰. These levels are set based on volatility expectations and the trader's risk tolerance 🚦.

4. Monitor and Adjust 👀: As the news release approaches, traders closely monitor market conditions and may adjust their orders based on any pre-release price movements or new information 📉📈.

Example:

Let’s assume a trader is preparing for the release of the U.S. Non-Farm Payroll (NFP) report 📑, a highly impactful economic indicator.

Current Market Conditions:

• The EUR/USD pair is trading at 1.1000.

• The trader expects significant volatility following the NFP release 🌪️.

Setting Up Pending Orders:

• Place a pending buy order at 1.1050 with a stop-loss at 1.1025 and a take-profit at 1.1100 📈.

• Place a pending sell order at 1.0950 with a stop-loss at 1.0975 and a take-profit at 1.0900 📉.

Pre-Release Adjustments:

• As the release time approaches, the trader monitors any preliminary market moves and adjusts the orders if necessary 🔄.

Post-Release Actions:

• The NFP report is released 📅, and the EUR/USD spikes to 1.1060, triggering the buy order 📈.

• The price continues to rise, hitting the take-profit level at 1.1100 🏁.

• The sell order remains inactive and is canceled after the event 🚫.

The news bracketing strategy can potentially capture significant price moves and profits in a short period 🏦, with defined risk through pre-set stop-loss levels 🚨. However, high volatility can result in slippage, causing orders to be executed at worse prices than expected ⚡. Additionally, if both buy and sell orders are triggered in rapid succession, it can lead to losses on both sides 🔻. This strategy requires careful planning and quick execution to navigate the benefits and mitigate the inherent risks effectively ⚙️. Some prop firms allow this strategy while others ban it due to the heightened risk and potential for significant losses ⚖️.