Every currency trader looks to the economic calendar for information on the big upcoming macroeconomic events. GDP reports, nonfarm payroll numbers, consumer confidence indices or interest rate decisions, each piece of news is graded ‘low’, ‘medium’ or ‘high’ depending on the estimated market impact.
High-impact releases can cause significant volatility — especially if the data differs from expectations. Taking a position around a major news release incurs a greater degree of risk, but one that you can plan for to best manage your exposure and strategy.
What many traders have yet to take advantage of though is a news source that is responsible for a tremendous amount of volatility and trading opportunities: the Twitter account of US President Donald Trump.
Unlike the economic calendar, there is no schedule to his tweets. Trump announces his opinions and intentions as the mood takes him. But the results are undeniable. The Average True Range (ATR) of a currency pair, always a good indicator of volatility, tends to spike upwards whenever Trump’s tweets mention a country, company or political leader.
4 reasons why currency traders need to follow Trump’s tweets
- Trump’s tweets have real economic consequences. In December 2016, Boeing shares fell by 1% after a negative tweet from Trump about the cost of the new Air Force One. While Boeing, and other targets of Trump’s ire, have generally recovered in the long run, his Twitter outbursts have an extraordinary track record of short-term market impact
- In the first year of his presidency, Donald Trump tweeted, on average, about seven times a day. That represents seven daily instances of potential market manipulation or fundamental shocks.
- The nature of Trump’s off-the-cuff, spontaneous announcements means that everyone must react at the same time. Unlike the pre-scheduled economic calendar, there are no panels of researchers and analysts waiting for the data to drop. Everyone, from large trading desks to individual day traders, is operating off the same information.
- Trump’s tweets can give you additional insights into the general direction of America’s long-term economic policy. In January 2017, Donald Trump took a swipe at General Motors for making cars in Mexico. In August 2018, only the last-minute US-Mexico deal to replace the North American Free Trade Agreement averted US tariffs of up to 25 percent on vehicles imported from overseas.
How can entrepreneurial investors take advantage?
We can see the real-world impact of Trump’s voice on social media. Now, let’s look at how currency traders actually use this information. Whenever Trump tweets, the smart currency trader has to consider two things: the opportunity and the strategy.
Let’s look at three examples of Trump’s tweets, how the market reacted to them, and the specific strategies you can employ to best take advantage of future opportunities.
Pro-Trader Tip: Set a wide stop loss to stay in the trade
“The Wall Street Journal has it wrong, we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet?”
Donald Trump, 7:15 am - 13 Sep 2018
Trump’s hostility towards China and commitment to tariffs on Sino-American trade affected the currencies of both countries. There was increased demand for USD and a corresponding decrease in demand for CNH. In turn, this caused the USD dollar to appreciate against the CNH, which resulted in the USDCNH rising.
Market volatility around Trump’s more aggressive tweets tends to be high. As the chart above shows, there was a massive spike in the very next candle following his tweet, and the (ATR) increased tremendously.
When the price “whipsaws” — moves very quickly back and forth — like this, a trader may need to set a wider stop loss than usual. In the above example, adopting this tactic would mean the trader avoids being “whipsawed” out of the trade by the spike.
Combine insights from both the economic calendar and Trump’s twitter feed and open a trade with Exness today
Pro-Trader Tip: A trailing stop loss can maximise favourable trends
“Going to New York. Will be with Prime Minister Abe of Japan tonight, talking Military and Trade. We have done much to help Japan, would like to see more of a reciprocal relationship. It will all work out!”
Donald Trump, 1:52 pm - 23 Sep 2018
On 23 September 2018, Trump announced that he was hoping for a mutually favourable outcome to his meeting with Japanese Prime Minister Shinzō Abe. The positive content of this tweet resulted in the Japanese yen strengthening, and thus the USDJPY dropping.
In a similar reaction to Trump’s negative tweet about China, his positive tweet about Japan resulted in market volatility. The ATR shot up and there was also some strong whipsaw price action. As with the “Trump and China” scenario, setting a wider stop loss in these conditions helps to avoid being whipsawed out of trades by wide price fluctuations.
A trader could also employ a trailing stop loss. This strategy ensures that the trader can take full advantage of the big moves that tend to occur during such volatile events. For example, after Trump’s tweet about Japan, the price did not fall for a short period — it plunged downwards. A trailing stop loss helps a trader to ride the price movement all the way, which is especially useful if they manage to forecast the direction correctly.
Pro-Trader Tip: Only Trade When You See Opportunity
“Wow, I made OFF THE RECORD COMMENTS to Bloomberg concerning Canada, and this powerful understanding was BLATANTLY VIOLATED. Oh well, just more dishonest reporting. I am used to it. At least Canada knows where I stand!”
Donald Trump, 11:37 am - 31 Aug 2018
This confrontational tweet, regarding Trump’s stance towards Canada, may have been expected to impact the US and Canadian dollar. In its aftermath, there was volatility as the USDCAD spiked down and up and the ATR shot up too. However, it was price movement without a clear opportunity to enter the market.
Don’t trade when there is volatility, but no clear opportunity. In this instance, while Trump’s tweets towards Canada again showed his ability to cause market volatility, it did not represent an obvious currency pair trading opportunity. In forex, it is as important to know when not to trade, as it is to know when the market is right for you.
Following Trump’s Twitter account should be a key part of your trading strategy. Now put it into practice. Sign-up or login to your Exness account and you can begin trading today.