Although it is not recommended to trade the news through the short time frames like 15min, still you can trade the news through the too strong trade setups they create on the longer time frames like daily, weekly and monthly. This is what we do. Usually most of the strong trade setups on the longer time frames form because of the strong economic news or events that many of them are shared with the public, but some of them are hidden and behind the scene. What we see in both cases, is the signals or movements that form on the price charts whether we know what the news was or not.
In most cases, a strong trade setup forms on a long time frame like monthly, and so the price moves accordingly while there is no special and important news, or if there is, we don’t know what it is. However, usually most of the strong and important news will follow the same trade setup that was formed on a long time frame sometimes several months ago. The question is whether the strong news follow the strong trade setups, or the market knows the direction of the strong incoming news, and so it starts moving accordingly in advance?
The economy and markets are strongly linked to each other. When the price reaches a too strong support or resistance level, and so a strong buy or sell signal forms, that is the time to make necessary changes on the economic factors like interest rate. Indeed, the too strong support/resistance levels determine the markets boundaries and limits.
When the value of a currency goes up too much, the economy and industries suffer because of receiving less orders from the other countries. This the time to lower the interest rate to lower the value of the currency to motivate the economy and industries.
Similarly, when the value of a currency goes down too much, the prices and the inflation are also too high. Therefore, they have to increase the interest rate to take the money out of the markets and flood it to the banks, to slow down the markets, and so, lower the inflation.
Why am I explaining this? Does it make any difference for retail traders?
You don’t have to care about these things if you just learn the strong candlestick patterns and trade the long time frames. You just take the too strong setups and make your profit, no matter why they are formed. However, what I explained above helps you to have a better understanding from the markets, price movements, and trade setups formation. You will enjoy your trading more when you know what is going on behind the scene. It is like driving. You can be a good driver while you don’t know how engine, gearbox, brakes, and… work. However, you enjoy your driving more, and you can be a better driver when you know how your car works.
A Good Example
Several months ago NZD/USD hit a too strong resistance level at 0.8841 that is the highest price NZD/USD could ever reach. NZD/USD formed a relatively strong short trade setup below this level by 2014.07.01 monthly candlestick.
Since that time, NZD/USD has moved down for over 1300 pips (read this). That resistance was apparently the only reason of forming the 2014.07.01 short trade setup. However, since this market has started going down because of the 0.8841 resistance level and the short trade setup that was formed below it, almost all important NZD related news have been agreeable with this short trade setup. For example, “Official Cash Rate” which is an overnight interest rate was released yesterday while they lowered it from 3.50% to 3.25%. This can take the NZD value even lower.
Why did they decide to lower the interest rate?
You should be able to answer this question now. NZD value had reached the highest level against USD. That was the time the market decided to sell NZD against USD, because the market container was full of the NZD that was already bought. It was overbought. The NZD high value had made New Zealand to receive less and less orders from the other countries, specially US. This is what no country likes. To boost the downward movement, they lowered the interest rate while NZD was already on its way to go down.
So, strong support/resistance levels on the longer time frames are very important. Central banks don’t change the interest rates when the price reaches a support/resistance level on the one hour chart, but they do it when same thing happens on the monthly chart. This is something that helps you a lot as a trader.