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Must Know: Learn to Trade Forex News
Such variant of trading as trading forex on news is very popular among most Forex traders. This strategy owes its popularity to such properties as simplicity and high level of predictability. The essence of it lies in the fact that after the release of important news, with almost 90% confidence you can predict in which direction the rate of a particular currency will move. To trade on news on Forex you do not need to have a lot of knowledge.
Most effective trading strategies recommend a market participant to enter the market before or at the moment of the important news release, but this rule should not be taken as an axiom. After all, there are many interesting tricks to trade in extreme moments as well. There are moments when the price behaves the most volatile and moves quite quickly. Today we will discuss how news is used in trading, the influence it may have on the market, and trading strategies on the news. There is a dual opinion about trading in the news time, which divides the players into conservative and radical. Such trading is full of risk and surprise, which for beginner traders can be very confusing. In this article we will try to understand the currently available effective strategies of trading the news in Forex, as well as tell you about the main news, setting the tone for the movement of currency quotes. Assuming that the first category of traders can include those who (as a matter of principle) do not rely on fundamental analysis to open their transactions. They are mainly guided by the methods of technical analysis, reversal, and continuation of the trend, the passing volume, signals of various indicators. For them, all trading strategies based on the news are alien and they prefer to analyze the market after important events.
This tactic justifies itself, but it usually pays off in the middle of the day, on small hourly timeframes. If you take scalping strategies, the fundamental analysis is useless here, and the majority of tactics do not recommend trading on the news. When the news is published, the probability of large price fluctuations increases and the Stop Loss may trigger before the price approaches your goal. In this article, you will learn how to trade on a Forex news trading strategy without being manipulated by market makers. The following participants are those for whom fundamental analysis is the basis of their trade, but they do not prefer to trade during the publication of economic indicators of countries, either. These representatives of the currency market use fundamental knowledge to determine the long-term direction of the price of the current asset. As a rule, these investors have impressive amounts of deposits, so they place trades for long periods: months and years.
There are also such traders, who actively apply the strategy of trading on the news. For them, this tactic has become the main occupation. These traders approximately already know how this or that news will affect the asset, whether it will result in the passage of a large number of points or the market will meet it sluggishly. They also take into account inadequate market reactions, using special techniques to minimize losses. How to apply news in trading? There are only 2 options for using news trading: before the economic data release, close all positions or at least drag the Stop Loss to a break-even zone to protect yourself from losses. If the price makes a sharp jump towards the Stop Order, you will simply not have time to react and will have to close the trade manually with a substantial loss. You can try to catch this momentum by placing pending orders for a breakout on both sides of the price 10-15 minutes before release. As for finding the source of information for a trading strategy on the news, there are a lot of sources that provide them. For example, the ForexFactory website is very informative in this regard. Here you can filter and screen out news according to the degree of economic importance and choose the currency pairs you need.
How Do I Actually Trade News?
The features of trading on the news are as follows: if the news is positive towards the base currency in the currency pair, the price is likely to go up, if a negative statement is published, it will almost 100% cause a decline in the currency rate.
At the same time, one should be careful, as news on the quoted currency in a currency pair has the opposite effect - positive news may cause a decline in the price of the currency pair and negative news may trigger a rise in the price of the currency pair, so it is advisable to focus mainly on the base currency.
For example - the pair EUR/USD, we try to track only news on the euro currency, this approach will simplify the whole process.
When trading, we are guided by the following events - the publication of the values of the indices of the state of the economy, changes in the interest rate of national banks, inflation, and unemployment.
Pay attention that most important news is highlighted in the economic calendar.
But also we should not forget about the events of chaotic nature - natural disasters, terrorist attacks, statements of politicians and financiers.
When opening a position, always remember the possibility of a correction after a strong trend movement, so do not delay its duration, on one operation you can guarantee to earn a couple of tens of points.
An interesting feature of the strategy on the news is that waiting for the news release itself affects the market situation, especially if you know beforehand what the news will be.
This fact should be taken into account when opening positions because news that contradicts the forecasts always causes a greater change in the trend than those that coincide with the analysts' forecasts.
An example of strategy application on news
Trading is carried out on the euro/dollar currency pair, we open the forex calendar and see it. That at 14 o'clock there is a message about the change in the interest rate on the euro. We launch the trading terminal and open the news feed. If you wish, you can subscribe to it.
We wait for the event mentioned above and after the trend has moved in the right direction we open the trade.
The order is closed at the first signs of correction.
As you can see, the strategy is really easy to use, even a beginner can master it, the main thing is to know how the event will affect this or that currency pair.
Trading on expectations: buy the rumor, sell the fact
Usually, it`s already known in advance whether the interest rate (or any other economic report) will be raised or reduced, besides, there is data on the preliminary evaluation of the trade balance and other economic indicators that can affect the exchange rate.
The market, waiting for confirmation of the existing information, is gradually moving in accordance with the forecasts, this moment is the most attractive for trades.
The date of the economic news is known beforehand, the time of their release is published on the economic calendar, which is the main tool of a trader who uses fundamental analysis.
Especially useful is the "Forecast" column, which indicates the expected change in the published indicator. This very column has the greatest impact on the existing trend.
In order to place a trade, you should analyze the upcoming news, evaluate the forecasts and compare the obtained result with the existing trend. If the trend moves according to the forecast, it is possible to open a trade.
For example, in 4 hours will be published the U.S. Unemployment Rate data, according to preliminary estimates, it is believed that there will be a significant decline in the indicator, at this time we can see a confident upward trend on the currency pair USD/JPY, then we open a buy position.
The Bottom Line
It follows from the above that the Forex market is predisposed to short-term changes caused by the announcement of various economic news. If you are eager to take advantage of news released, you have to treat as serious as possible, getting prepared by tracking when and what data will be published, which one gives more sufficient returns and, of course, how to trade in this or that outcome. Also, pay attention to exotic currency pairs that will reduce your risks tremendously. After all, do your research and keep your finger on pulse ahead of the news release.