The news candle: why its high and low become magnets

[Shadow Trader]

High impact news produces a candle with a huge range, and the extremes of that candle become reference points for the rest of the day or even the week. The reasons are practical. Many stops get triggered during the spike, many traders anchor on the extremes afterward, and price often returns to test whether the spike was accepted or rejected. I have found the most useful approach is to avoid trading the spike itself and instead mark the high and low of the news candle and see what happens when price returns to them. If price comes back and sweeps the high of a bullish news candle but closes back inside, that suggests the move up was exhausted and the other side may be targeted. If price returns and holds above the extreme with strong closes, the news move probably has continuation. Spreads and slippage around the release make execution unreliable, so I let the dust settle for at least thirty minutes before looking for setups. The key is patience: the news candle gives you a map afterward, not an entry during.

[FXS HongKong Scalper]

Waiting for the return to the news candle extremes avoids the worst of the spread and slippage. One caveat: on days with two releases close together, such as US CPI followed by a Fed speaker, the first news candle can get overwritten by the second. In that case I use the larger of the two candles as the reference. For releases during the Asian session, like Australian jobs, the extremes often get tested again at the London open.