Decade Low European Unemployment: Making Educated trades to maximize profits and minimize risks

⇑

Overview

The european unemployment rate has been decreasing since the Great Recession and debt crisis which brought it to a high of 12.1% in February 2013. This decrease is a result of the increased efforts to improve the economy by lowering interest rates as well as the European Central bank setting a negative 0.4% on deposits it takes from commercial banks. This penalty was designed to promote banks to lend money.

Fig. 1: The trend of European unemployment rate over the last decade
Source: tradingeconomics.com

The recent release of the European unemployment rate (see Fig. 2, click to enlarge the image) was the lowest it has been in a decade. With an expected rate of 7.6% and actual of 7.5% this represented a much stronger than expected release.

Fig. 2: EUR unemployment release
Source: BetterTrader.co

The result is a decrease in the EUR/GBP currency pair. As shown (see Fig. 3, click to enlarge the image) the immediate effect of the release at 6:00am had an increase in the currency pair but within 20 minutes it had returned below the entry point. After that point, the pair continued to drop so a trader that shorted the position before that point would be able to defend themselves and continue with little to no pain.

Fig. 3: Graph following EUR/GBP for an hour after the release
Source: Trading View

The Problem

Being prepared for the release of the unemployment rate would allow you to make a decision as to whether or not you are going to take on the new position. The issue is that even though you are prepared a few things can still occur. If during the first 20 minutes after the release you opened a short position you would find that you were losing money and may have closed the position to prevent loss. Alternatively, if you had waited to open the position you would have missed a profitable entry position. To give you some ease it is best to look at historical trends and past data to better understand how the market will digest the new information.

So how can we be ready before the release?

A key factor in market movements are macroeconomic events. An educated trader one must be ready to react to any changes in the economy as quickly and efficiently as possible. This allows us to minimize risk and maximize profits.

By utilizing the BackTester you can prepare for the release of the information, get an idea for what possible positions you can open, and understand where a reasonable stop loss should be as well as the profit target. Let’s walk through it together.

Looking at the interface can seem challenging but I am going to show you exactly what you should be looking for.

Here is what happened if you clicked the 4/5 in line with the much stronger and EURGBP.

This combined information allows you to make an educated decision when placing your trades. If we take the information we gathered and use it against the live chart as it occurred.

After the release

Finally our 4 minutes and 49 seconds are up and the information was released.

Fig. 10: EUR unemployment release
Source: BetterTrader.co

When the information was released it was much stronger and the researched shown above proved to be useful. The BackTester showed the following trade idea.

Fig. 11: Eurgbp trade idea
Source: BetterTrader.co

The trade idea shows a stop loss and profit targets. These values are determined using previous releases so that you can a sense of security in your trade.

Fig. 12: Eurgbp chart analysis
Source: BetterTrader.co

As shown above, the short position never reached the suggested stop-loss, which we saw in the BackTester. But the profit target, generated using the same method, was reached. The figure also shows that the position would have reached the profit 53 minutes into opening the position allowing you to close the position and make your profit.

All of this information is available to you with the click of a button and in real-time after the release. Then with another click, you are able to switch to your broker and place your trade.