This is something that swing traders have to address on a regular basis.
Presently I have open positions in NZDCAD (long) and ESP35 (long).
This afternoon there are two key risk events. The ADP employment report at 1.15pm and the Bank of Canada rate decision at 3pm, followed by a BOC press conference at 4.15pm. Both positions are currently in profit.
ESP35 position: what impact does the ADP report tend to have on the Spanish index? Looking at the volatility on the 1H chart of ESP35 during the last six ADP reports, it seems that the resulting volatility is not overly significant. It is less significantl than I had expected before doing this bit of research. I am not able to reduce the size of my position because I am already trading the smallest available increment. On the basis of a lack of correlation I will keep the position open and leave my stop at the adjusted level at 10,085 – the index is currently trading 10,125 after trading as high as 10,223 earlier in the session. (Naturally I am not concerned about any correlation between ESP35 and the BOC decision).
NZDCAD: Again, looking at the volatility of the past six ADP reports, the size of the 1H candles of NZDCAD during those announcements ranged from 10-30 pips – so definitely some reaction but nothing like a NFP report. Thus it should be ok to leave the position open for the ADP announcement.
In terms of the BOC decisions the size of the 1H candles for the past 5 rate meetings were 70, 40, 80, 35 and 30 (most recent meeting listed first) – however in some of the cases prices moved a significant amount in the few hours prior to the meeting – this is something that I am seeing at this very point. The pair is currently trading at the highs of the day – I will let the position ride to around 2.30pm, at this point I will take off half of the position. I will take off the remaining half just prior to the announcement.
UPDATE (following morning): How did this actually play out?
The ESP35 position did not move much at all during the ADP announcement. It continued to rally throughout the afternoon. I decided to close the position as it one of the pivot lines, and closed at 10,237 (up 197 points, compared to risking 120 points). This turned out to be the high of the day.
The NZDCAD position – The pair did not move a lot during the ADP announcement. As planned I closed 1/2 of the position 1-2 hours before the BOC announcement, to lower the variance/volatility associated with the trade. This was closed at 0.9320 (+40 pips). I closed one quarter just before the announcement at 0.9315 (+35 pips). I let one-quarter of the position run into the announcement. As expected there was some volatility, with pricing rising to 0.9335 before eventually falling off and moving to a low of 0.9270 in the Asian session. I closed the last portion in the evening after I noticed the MA10 and MA20 crossing the MA100 and the 15M chart.