Today, I am coming to you with something practical. I want this to be a trader focused article that will help traders in navigating Bitcoin’s sharp price swings around U.S. inflation and rate policy news releases. I will decipher what you need to watch, sizing risks and tactics professional use in the minutes and hours after the news drops the numbers.
Why does inflation-day news matter for Bitcoin?
I was of the idea that Bitcoin was not affected by news from centralised systems but we all know that type of view is just a lie. This is because Bitcoin is a digital currency, people tend to measure its value in relation to fiat currencies, particularly the U.S. dollar. As a result, any news that affects the USD tends to affect the perceived value of Bitcoin in relation to the USD.
U.S. inflation prints like the CPI and the PCE can sift interest-rate expectations within a few minutes. If the inflation is higher than expected, it usually reflects tighter policy and higher real yields. This has been historically shown to put some pressure on risk assets that include Bitcoin. If the inflation is lower than expected, then the pressure on risk assets is loosened.
We trade Bitcoin 24/7, but macro news releases are clustered around 8:30 a.m ET, this includes the CPI, PCE and employment situations. This then concentrates cash flows and volatility into a specific time window. As a result, when you trade, you have to expect wider spreads, thinner order books and faster price movements as market makers reprice risk and hedgers adjust to the new outlook.
Key news releases to look out for
The main news that usually move prices for crypto are as follows:
- CPI which is released monthly at 8.30 a.m. ET and provide headline and core inflation data.
- PCE which is released monthly at 8.30 a.m. ET and is the Federal reserve’s preferred inflation gauge.
- FOMC announcements and pressers by the Federal Reserve. It usually includes rate decisions and guidance.
- Non Farm Payrolls released monthly measuring the changes in paid workers across industries, excluding agricultural workers, private household and non profit as well as government workers. It usually shows how the economy is performing.
You can use economic calendars to avoid surprises and also follow important economic events. For example, for the past weeks, no news was released due to the biggest U.S. government news ever.
Understanding post news price action
Post news asset prices move in 3 stages.
Soon after the news release, Bitcoin and other key asset prices move in an initial impulse move. This occurs 0-3 minutes soon after the news and during this period there are very high slippage spikes and spreads also widen. The first candle after the announcement usually overshoots. And this is mainly due to the adjustment of hedges by algorithms and large players.
At the period of 3-15 minutes after news, there is mean reversion whips and stop loss runs. This occurs as order books refill, but this is also where most retailers are taken out becoming liquidity.
At 15-30 minutes after the news, we can then observe a directional drift or fade. This is the period in which the market digests the surprise versus the consensus. A clearer trade will start to form and ranges may also emerge. During this period funding rates, open interest and options IV begin to normalise.
Most of the time, post news price movements in many assets all follow these stages of price movement.
What you need to do before news release
It's not very wise for any trader to just enter a trade on any day without checking the market weather. Before any news release, it's always very wise for you to prepare yourself. This is very good if you want to avoid making impulsive, foolish and regrettable decisions.
So, from at least 24 hours down to 5 minutes before news release, you can prepare by:
- Confirming the time of news release and the consensus estimates via official sources. Sites such as investopedia, capital.com and investing.com usually have enough information pre-release.
- Make sure to properly identify the windows that are more likely to have more volatility, taking into account the three stages above.
- Trim your leverage and consider using isolated margin to reduce cross lateral risk. If you have cross margin trades, it would be better to only leave the capital you are willing to lose.
- Make sure to cancel all non essential resting orders before the news. For OCO brackets, only use them if you have tested them in high volatility environments.
- Clearly define your risk tolerance and maximum losses, then stick to them.
The best ways to trade: The first hour after news
I used to wonder why many pros used limit orders in directions of expected movement? To me, it was just something of a flexing of muscle rather than a strategy. Well, I could just place the market orders after the news and confirming direction right? Well, I was so wrong!
In the first 0-3 minutes after news, it's wise to observe only. Risk takers could trade but stay away from placing trades with market orders. This is because during high volatility periods like this, spreads can be punishing. Imagine opening a trade at minimum lots and starting with a 50 dollar loss? How will you make profits then if you can start with working for a large loss. This is the reason why pros work with preset market orders.
In the following 3-15minutes, we will now be looking for retests. If the first impulse breaks a key level, we wait for a pullback towards that level and only trade with a reduced size. As I said earlier, post news releases, always favour limit orders as they protect you from crazy spreads and slippages.
At 15-60 minutes, you then decided on regimes. If price holds above an anchored benchmark, showing higher highs and higher lows, you can start considering protrend entries with tight and predetermined stops. If the impulse fails and slips back into the previous range, you can look for fade setups with reduced position sizes.
Pro risk management tactics
I don’t care what everyone else says, but to me, risk management is what trading is all about. There is nothing as important as protecting your capital and this is what many pros do.
Position sizing is a very important component of risk management. During news and after news release, it is wise to cut your normal position by 20-50% while risking less than or equal to 0.5% of our capital. News brings volatility so if you win you usually get what you normally get or slightly more. If you lose, then you won’t lose all your capital.
During news trading, I have started to prefer limit orders. I do this to minimize slippage and crazy spreads during high volatility times. You must also use leverage modestly. Isolated margin trading is better than cross margin in this case as it risks only a part of your capital not everything in your account.
No matter how excited you are, it's wise to use stop losses and take partial profits while locking in your profits. And finally, once you reach your daily loss limit, close the charts and get a beer to relax. It's always good to protect whatever you have left. You can try again tomorrow! Remember, it's not the market that can get finished, it's your capital!
How to avoid common pitfalls
The thing with post news release trading is that it can be very lucrative. So, many people become too greedy and end up risking more and losing everything. After all, the market is all about probability, and you can never be too sure about what's going to happen. You can avoid the following risky behaviours to better protect your capital:
- Stop chasing that first big candle, this is because this is the noisiest candle. It's better to wait for confirmation or retest.
- Avoid using big position sizes with tight stops, this may be ideal in normal trading but news volatility loves clipping tight stops.
- Do not ignore the Economic calendar, if you ignore news you can take a risky trade and unknowingly your account will get humbled.
Final thoughts and conclusion
Treat the news release day like a planned event. This allows you to prepare, size down, close unnecessary positions and let the market movement guide you. I understand there is no one size fits all in crypto trading, however, if you don’t want to deposit every other day, the best thing you can do is protect your capital. With news, while others love catching that first rocket move, it's not really necessary to chase it. Most of the time it is powered by thin air and many times double spikes have liquidated early traders in both directions. Respecting the first 15 minutes might just give you the correct confidence to enter the markets. I also know, you might be crazy because you hink after 15 minutes all the movement would be complete! But, what is better, protecting the capital or making a wrong prediction?
My Affiliate links
For crypto trading I use Okx and Kucoin:
https://www.kucoin.com/r/rf/QBSY1VX3
For forex trading I use justmarkets and FBS
https://fbs.partners?ibl=1028825&ibp=33282156
https://one.justmarkets.link/a/97t6p07ht2
For synthetics trading 24/7 markets I use deriv and Weltrade
https://track.gowt.me/visit/?bta=52354&brand=weltrade
References
- Bureau of Labor Statistics — Consumer Price Index (CPI): https://www.bls.gov/cpi/
- Bureau of Economic Analysis — Personal Consumption Expenditures (PCE): https://www.bea.gov/data/consumer-spending/personal-consumption-expenditures
- Federal Reserve — FOMC Calendar: https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
- Kaiko Research — Crypto Market Microstructure and Volatility: https://kaiko.com/research
- CME Group — FedWatch Tool (rate expectations): https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
