The currency markets often jump after the results of the fundamental economic announcement hits the news wires. It smashes through the nearest and weakest levels of support and resistance when it does.

However, at some point the price has jumped too far and too fast and pulls back. This price level is very important. It often takes three to five minutes to reach that level. When the price level reaches this level and begins to pull back, this is the end of the news spike in most of the cases.

Just before the news came out, the markets began to wake up. Dont forget that traders cant know the results of the news before it is released. Some traders are placing orders on hunches, rumors and guesses. Mark the price level when it begins to pullback with a horizontal line on the chart.

The chances are that the currency market may move in the wrong direction as the initial reaction to the news. Most often, this last minute volatility is created by traders exiting a trade before the news is released trying to avoid volatility in the markets.

Dont pull the trigger at this point and try to preserve your capital. The news is then released suddenly. The market moves dramatically. Dont trade just because you see the market moving in a particular direction 20 seconds before the news was announced. Thousands of market orders are placed by traders just before the release of the news. This causes a lot of volatility in the markets.

There are unique risks like slippage, gapping, spreads and such. Dont pull the trigger yet. However, we now have two pieces of vital information with us now. We know the results of the economic announcement. We now know whether it was good, bad or surprising for the markets.

We also now the direction in which the market is moving. Let the market move. Stay out. Discipline is important. Dont pull the trigger. It may feel like you are missing a great trading opportunity. You are only missing the risk.

The price begins to pull back. You have a better market to trade now. Volatility is still high but not wild, crazy or out of control. Slippage risk drops to zero. The danger of spreads widening is now drastically reduced.

You now know the direction, support and resistance of the market. The price retracements are often where the novices lose money. You have avoided it by waiting for the price to pull back. Now trade in the direction of the market.

You can also let the news come out, let the volatility identify the support and resistance, let the price pull back, let the price bounce again and cross the horizontal line that you had drawn. Thats too much waiting and requires good patience on your part.

The main focus should be preservation of your capital and only trade if the chances of winning are high. It will keep you out of bad trades. If the market reacts powerfully to the news, only then trade. Otherwise stay out of the trade.

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