The Forex market is the most vulnerable investment platform, which is considerably impacted by news from around the world. Consequently, by learning to take advantage of forex news, investors can avoid several costly trading mistakes and improve their profitability.
In fact, the ability to foresee and analyze Forex news is what separates an experienced forex investor from a novice one.
The first thing to consider while Forex news trading is that the news itself holds little importance. What matters more is the trader's analysis of the same. Remember, traders may draw varying inferences from the same news.
Since Forex news analysis is often subjective, the safest thing to do is to take an overview of the news and draw your own inference. To trade like a pro through news, simply review the news and evaluate how it moves currency prices. Keep a look out for potential trend changes, which generally occurs when bullish news fails to push the prices up or bearish news fails to lower the prices.
Additionally, to trade on news like a pro, watch out for only high-impact news releases. Do not waste your time analyzing trivial Forex-related events. High-impact news releases are those that have a high probability of:
Moving the market. Not all events are capable of moving the market. Note that sometimes Forex is sentiment driven. As a result, lesser news reports may not have an impact significant enough to change the predominant Forex market trend.
Predictable reaction. On the basis of historical reactions, high impact news releases will typically move a particular currency pair by certain pips (or points). Therefore, while trading on Forex news, it is crucial to pick the appropriate news releases to trade.
Events that affect the value of key currencies like the US dollar, Euro and Sterling are also considered high-impact news. This is because the status and movement of these currencies, directly and indirectly, impact the value of most currencies on the Forex market.
While trading currencies on the basis of news is an excellent strategy, the important thing to bear in mind is that relevant Forex news often arrives too late to be taken advantage of fully.
Often, by the time high-impact news becomes available to general traders, it has been analyzed by several professional traders and financial institutions, which increases the vulnerability to personal and institutional biases.
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