Key Points:
Major news events like CPI, NFP, and FOMC often create deceptive market moves.
Pre-news positioning by institutional traders gives clues to the real direction.
The first reaction is usually a liquidity grab, not the true trend.
Smart traders wait for the second move—where the real opportunity lies.
The News Trading Practice That Gets Everyone
It’s 8:29 AM EST. NFP is about to drop, and the market is acting sketchy—spreads widen, orders disappear, and price starts twitching like it knows something you don’t. Then boom.
The numbers hit, and price rips in one direction. You’re thinking, "This is it! The breakout!"—but if you’ve traded long enough, you already know what happens next.
Price does a full U-turn, smacks your stop loss, and then makes the real move.
Sound familiar? Welcome to news trading.
It should. Because this happens over and over in forex trading. CPI, NFP, FOMC, it doesn’t matter. The first move after news is rarely the real move. It’s a trap. And unless you know what’s really happening, you’ll keep falling for it.
So, why does this happen? Why does price make a huge move, only to reverse just as fast?
Let’s break it down.
The Liquidity Grab: How Smart Money Moves the Market
Retail traders think news moves price. It doesn’t. Liquidity does.
Institutions don’t trade like retail. They don’t watch the news and react. They already know what they’re going to do before the release even happens.
Here’s the real game:
1. Pre-News Positioning – Institutions Set the Trap
Big players don’t trade news, they position before it. They build positions quietly while retail traders wait on the sidelines.
If price has been rallying before the event, smart money is likely building shorts and will use the news spike to trap buyers.
If price has been selling off before the event, smart money is likely loading longs and will use the drop to trap shorts.
👉 If you only watch the news, you’re missing half the trade.
Source: investopedia.com
2. The Fakeout Move – The Liquidity Grab
The news is released, and the market makes a violent move. This is where most retail traders get trapped.
Stop-loss orders are triggered as traders jump into the move.
Liquidity pools get activated, allowing institutions to execute large orders at better prices.
The move appears strong but is often just an engineered liquidity hunt.
This is why traders who chase news moves often see their stop losses hit just before the market reverses.
3. The Real Move – After the Herd Gets Stopped Out
Once enough liquidity has been captured, institutions move the price in the real direction they intended.
This move often happens after a sharp reversal, when retail traders have already been stopped out.
The best traders wait for this confirmation rather than reacting impulsively to the news spike.
Source: babypips.com
How to Actually Trade News Without Getting Smoked
Look, if you want to stop getting wrecked on news trades, you have to start thinking like the people who actually move the market. Here’s how.
1. Watch What Price Does BEFORE the News
If price has been creeping up before the news release, chances are big money is setting up a short trap. A fake pump, followed by a dump, is textbook.
If price has been bleeding lower pre-news, it’s probably a setup for a stop hunt before a reversal higher. They want you to panic sell.
Institutional positioning is a key indicator of what might happen after the news.
2. Ignore the First Move – Trade the Second Move
Do not enter a trade immediately when news is released.
Allow liquidity grabs to play out and wait for price confirmation.
The best trades come after the first liquidity sweep, not during it.
3. Watch the US Dollar for Clues
The US Dollar Index (DXY) is a critical indicator of broader market sentiment.
If the dollar initially spikes but then reverses, expect pairs like EUR/USD and GBP/USD to follow suit.
A strong dollar reversal often signals the real direction of the market.
4. Trade Fading Extreme Moves
One of the most effective strategies for trading news is fading the initial fakeout move.
Identify major support and resistance levels before the news.
Wait for a stop hunt beyond these levels.
Look for a sharp rejection and a move back into the range.
This approach works because it capitalizes on the liquidity trap set by institutions.
Real Examples of News Traps
Example 1: CPI Fakeout on Gold
In June 2023, lower-than-expected CPI data caused a spike in gold prices.
First move: Gold rallied sharply.
Real move: Institutions sold into the rally, pushing gold lower by the end of the session.
Source: cnbc.com
Example 2: FOMC Liquidity Sweep on S&P 500
In September 2023, Jerome Powell signaled a higher-for-longer rate policy.
First move: Stocks dropped aggressively.
Real move: After liquidity was absorbed, the market rebounded, trapping shorts.
Source: bloomberg.com
Final Thoughts: Stop Being the Liquidity, Start Exploiting It
News trading isn’t about who’s the fastest, it’s about who doesn’t get played. If you’re still chasing first spikes, you’re the target. If you’re patient enough to wait for the fakeout to flush out weak hands, you’re trading with smart money.
The first move after news? Bait.
The real move? Happens AFTER the weak hands get wrecked.
The best traders let the dumb money jump first, then take their lunch.
Watching the US dollar and broader sentiment confirms real trends.
The next time a major news event drops, avoid chasing the spike. Step back, let the market reveal its hand, and trade where smart money trades.
Key Takeaways
The first move after news is usually a liquidity grab.
Institutions position themselves before news—watch pre-event price action.
The best trades happen after the initial stop hunt.
Tracking the US dollar's reaction can help predict market moves.
Fading extreme moves after fakeouts is a profitable news trading strategy.