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Should You Hold a Futures Position Through an Economic Data Release?


Many people view a high economic release like a gamble, trying to predict which way it will push the market and hopefully capitalizing on the big move. High impact economic data releases include central bank interest rate decisions, employment data, FOMC minutes and crop reports.  An economic calendar shows scheduled data releases; the high impact ones are ones traders need to be aware of (usually marked on the calendar).

These data releases can cause large moves, and liquidity often dries up right before the release. That can exaggerate the move, because market orders must move further and further away from the pre-release-price to get out of, or into, a trade. If you have a futures trade, should you hold it through one of these releases, or exit before?

The first consideration is that your stop loss may be useless in a very volatile and low liquidity moment. You may end up with a worse price than expected if using a stop loss market order, and you may not get out of a losing position if using a stop loss limit order (the loss could continue to mount).

The next consideration is that even if we correctly anticipate the direction the event pushes the price, there may be "whipsaws" before that occurs, triggering our stop loss anyway.

These are both strong reasons to consider not holding through a high impact economic data release. But we don't want to bail on all our positions every time there is a news event, as they occur all the time, and traders trade on different time frames.

Day traders should never hold a position through a data release. Instead look to jump in after.

Swing traders should avoid taking a position right before a data release (assuming the strategy isn't specifically designed for news), and should exit before a news release if the price is close to their stop loss or profit target orders.  If the price is already close to your stop, a big news event could push it past. Take the loss before the event. If the price is close to your target, take the profit now. Don't risk the price quickly reversing on you just to make a few more dollars. In both these cases holding through the event could work out in your favor, but to only make or save a few dollars, what we give up or the larger risk we face isn't worth it.

Speculative traders should be aware of major economic events when the price is close to their pending entries, stop losses or targets. Professional traders don't gamble; they take high probability trades and are patient for opportunities--yet when they come they pounce quickly. While it may appear that the big money is in trying to predict what way an economic data release will push the market (think "Trading Places"), big money can also be made by waiting until after the data release. A volatile move will often have strong moves follow it, but with more liquidity the risk is reduce and the opportunity still present.

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