Event-driven trading strategies

An event-driven strategy mostly relies on non-market data such as economic or political news. We already considered the impact of these events on the market price (see Chapter 6, Basics of Fundamental Analysis and Its Possible Use in FX Trading). So, an event-driven strategy can attempt to enter when significant news hits the market and exit soon after.

The problem with strategies of this kind was also considered in detail in the same chapter: due to insufficient liquidity around the time of a news release, the price may jump in virtually any direction at an arbitrary distance, so you have no chance to place a trade at the desired price. At the same time, the return of liquidity may drive the price in the opposite direction, completely eliminating the potential for a profit in a few minutes (see Chapter 6 again for an example with the British pound and the release of the UK’s GDP figures).

I can confirm that profitable news traders used...