Long and Short Price Manipulation Models (PMMs) are caused by increased volatility during economic data releases, also known as news events.
They were discovered and studied over many years of trading experience by Dmitri Molina, a financial markets analyst at Headway, one of the top forex brokers in the industry.
Whether you want to learn how to “trade the news” or to understand what happens when economic data is released, this article is the right place for you to learn!
Introduction
Interest rate decisions, inflation figures, GDP growth, retail sales, and manufacturing data (such as PMI reports) can all trigger significant price swings.
These events provide insights into economic strength and influence central bank policies, investor sentiment, and risk appetite across asset classes.
Traders must adapt their strategies to the nature of each event, as some indicators create short-lived volatility while others establish long-term trends.
For example, inflation surprises can shift monetary policy expectations, while GDP revisions may redefine economic outlooks. Understanding the weight of each release and its interplay with market sentiment is crucial for navigating these events successfully.
Volatility is a sure thing when it comes to news releases, and beginner traders are always told “not to trade the news.”
While this advice is clear and wise, it might not always be true. Price manipulation during news releases can look disarming at first glance, but its dynamics can be predicted quite accurately.
In this article, we’ll break down two effective trading approaches for major and minor economic data releases.
These trading strategies are based on a price behavioral model, studied, built, and analyzed by Headway forex broker’s leading market analyst, Dmitrij Molina.
Whether you seek to exploit initial price spikes or prefer waiting for confirmed trends, knowing how to analyze the news, interpret market reactions, and execute trades with precision can make all the difference in volatile market conditions.
Manipulation Models
While trying to “scalp” the news can be challenging, they often can be used to enter positions with a high Risk/Reward ratio, taking advantage of price manipulation.
Take the NFP, for example. The Non-Farm Payrolls report is one of the most important statistical tools a trader can use to improve their vision of the market. It ranks alongside the Fed interest rate decision and the US CPI (Consumer Price Index) reports.
If you are afraid to miss out on this event, do not worry! At our forex broker, our team of analysts prepares for it thoroughly, giving accurate forecasts and explaining trade opportunities.
Such a significant event triggers intense price manipulation, typically lasting between 30 minutes and 2 hours after the release. Fortunately, these manipulations often follow recognizable patterns.
For instance, in 2024, 8 out of 12 NFP releases exhibited this trend:
- When the data is released, prices experience a sharp surge or drop in response to the report’s implications – for instance, a stronger-than-expected NFP could boost the USD, leading to a short-term price spike to the upside in the EURUSD.
This happens because HFT algorithms (High-Frequency-Trading) and the fastest among traders aggressively buy (sell) the news event, driving it in the direction suggested by a macroeconomic standpoint.
Take into account that the market USUALLY does follow macroeconomic realities, but sometimes, manipulation is just a manipulation without underlying logic.
- However, within the first 5 to 30 minutes, this initial movement often reverses, catching traders who enter too soon off guard.
In this scenario, either their Stop-Loss is hit, or they close their positions manually with a loss. Often, they soon reenter the market, betting heavily in the opposite direction, as the market continues sliding down
- Sadly for them, the market then sweeps liquidity on the opposite side before making a final, more sustained move in the original direction indicated by the data.
At this point, the traders who entered with FOMO on the initial impulse and then reversed, trying to offset their losses, are completely wiped out, and the market can now move in the most rational direction.
To trade this kind of information, we need to first understand what liquidity is. If you’re already familiar with the concepts of support and resistance, the information below will blow your mind.
Liquidity is a term used to describe an accumulation of orders on the chart, typically Stop-Loss or Take-Profit orders. It is not difficult to spot such an area.
The only thing you need to do is look for the lowest and the highest wick of a candlestick, which formed not too long ago. Alternatively, you can look for highs or lows.
Liquidity pools
Liquidity always rests below the lows, taking the form of Stop-Loss orders of those who went long, or above the highs, being the Stop-Loss orders of those who went short.
There are two Manipulation Models, which are the opposite of each other.
Long-directed price manipulation model (Long PMM)
Suppose you are trading EUR/USD and see that the inflation rate has finally dropped in the United States after a prolonged period of high interest rates.
Macroeconomically speaking, this would signal a potential rate cut by the Fed on its way, so the USD is prone to weakening.
As a result, the EUR/USD goes higher at first (1). However, not long after that, the price reverses (2) to take out those traders who jumped in, seeing a massive price increase.
Then, the price reverses to the upside again (3), trapping those who want to earn back their losses fast. If the price manages to close above the new liquidity pool, which formed at point (1), a bullish rally is likely to begin.
Long PMM
Short-directed price manipulation model (Short PMM)
Let’s assume a different situation now.
- Suppose that you are also waiting for US inflation data. The broader macroeconomic conditions come out of a prolonged high-interest rate period.
- Suppose that the consensus forecast expects a sharp drop in inflation, which is likely to prompt the Fed to consider rate cuts sooner. However, in the news release, the inflation figure increases.
- This leads to a stronger USD, pushing EUR/USD lower at first (1).
Then, the mechanism is the same as in the Long PMM, but with a manipulation on the opposite side. After this price manipulation, the currency pair resumes the fall, as now the Fed might not consider rate cuts at all.
Short PMM
When the model does not work
The Price Manipulation Model we explained in the paragraphs above works around 60-70% of the time. It is not universal for several reasons, the first one being the nature of the released data.
The PMM works if the data increases more or less than the consensus forecast, but caution is advised when the released data greatly beats or underperforms expectations and past results.
When this happens, the market usually proceeds abruptly in the most macroeconomically plausible direction, leaving no manipulation behind.
An example can be seen in the price dynamics in USD/JPY following the August 2, 2024, NFP report.
- The market consensus stood at a 175K increase, with a 179K increase recorded the month prior.
- Actual data showed that in June 2024, the NFP added only 114K jobs, far less than expected and previously shown.
When this happened, USD/JPY proceeded lower with strong bearish momentum. The PMM was invalidated from the start, so you should not have traded it or waited for it to manifest.
PMM failure on the August 02, 2024, NFP report
Another example of the Model’s failure can also be seen in USD/JPY following the July 11, 2024,
- US inflation rate release. Consensus planned a core inflation hold at 3.4% (previous 3.4%) y/y and an inflation lowering to 3.1% (previous 3.3%) y/y.
- On the news release, however, core inflation lowered to 3.3%, and “simple” inflation went as low as 3%.
- Moreover, both monthly core inflation (0.1% vs 0.2%|0.2%) and monthly inflation (-0.1% vs 0.1%|0.0%) lowered.
This data conjecture pushed the Ninja currency pair to crash strongly in a matter of seconds. No PMM Model would have been valid following the news release.
PMM failure on the July 11, 2024, US Inflation rate release
How to trade the news: An aggressive strategy
Following an aggressive approach, a trader can trade the news after the reversal in phase (2) takes place.
- To do that, you must mark on a 15M or 30M chart the most recent high and low price your Forex pair has formed (on the charts shown in this article, they are marked as intermittent lines).
- After the news release, you analyze the data you are provided with and decide whether a PMM is possible.
- If it is, look for hints on the chart to decide what kind of PMM is more likely to develop.
If the first impulse is to the downside, it is a Short PMM; if to the upside, it is a Long PMM.
- Then, you wait for phase (1)…
- When the candle of phase (2) closes, you can open your long position with a Stop-Loss below the recent manipulation swing, but ONLY if the price managed to take out the liquidity pool you marked before the release.
- Your Take-Profit can be placed on the new, untouched liquidity pool created in phase (1), or on the already wiped-out pool.
Remember to enter your trade only on the second manipulation!
This filtered tactic can help in cases where published data is overwhelmingly above or overwhelmingly below market estimates, and no manipulation at all happens. In these scenarios, the pair just spikes in one direction and continues unencumbered (PMM failure).
Aggressive strategy example on the Fed interest rate decision, September 18, 2024
As soon as the price leaves the manipulation in phase (2), place your Stop-Loss to break even.
Trading after the news: A conservative strategy
In case you do not want to burden yourself with manipulations on news releases, you can just wait for the volatility to settle and open your trade in the direction where the data report pushed the market (phase 3).
In the example above, the delivery of an outsized rate cut pressured the USD, as the Treasury yield dipped strongly.
As a consequence, the USD began weakening, thus pushing the Fiber higher in the longer term (at least, until European inflation was released on September 30, causing the EUR to weaken more strongly than the USD on a 1.6% vs 1.7%|1.9%).
In the Fed decision case, however, you could not have profited from a long position opened on phase (3), as the price had not managed to close above the phase (1) pool.
Conclusion
The Long and Short Price Manipulation Models provide a structured way to anticipate market moves, taking advantage of the temporary distortions caused by high-frequency trading and emotional reactions.
However, these models are not foolproof. When economic data drastically exceeds or falls short of expectations, price manipulation may not occur, and the market could move sharply in one direction without reversal. In such cases, traders must remain adaptable and avoid forcing trades where the setup is invalid.
Also, remember that a model is always an idealized version of reality, meaning that in the real world, the PMM pattern does not always happen “by the book”. Sometimes liquidity pools are not taken out, sometimes the price continues consolidating after the manipulation, and sometimes, the chaos of the market reigns supreme, without following any logic.
By implementing a well-defined strategy, however, whether aggressive or conservative, traders can capitalize on market inefficiencies while mitigating risks. Trading the phase (2) manipulation or the phase (3) breakout gives traders a high Risk/Reward setup that should not be overlooked.
Understanding the interplay between macroeconomic fundamentals and short-term liquidity grabs is key to navigating the complexities of news-driven price action.
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