Best Forex News Trading Strategy Explain, By Forex Forum.
The news represents great profit opportunities for Forex traders. By news, we mean various economic data releases. Every major economy regularly publishes statistics like GDP, inflation, unemployment rate, etc. If you trade Forex during the times of these releases, you have a chance to make a lot of money.
However, we have to warn you that potentially big profits always come hand in hand with bigger risks. Volatility spikes during these periods and prices may move in a disorderly fashion. If you don't have a solid trading plan for a particular event, it's better not to engage in any trades at all.
News trading strategy
A news trading strategy involves trading based on market expectations, both before and after a news release. Trading on news announcements can require you to make quick decisions, as the financial markets may be impacted almost immediately. Therefore, you will need to make quick judgements on how to trade the announcement.
When trading on news releases, it is important that you are aware of how financial markets work. Sometimes news is already factored into the assets price. This happens because traders attempt to predict the results of future news announcements and so, in turn, the market responds by changing the price of an asset. News-based trading is especially useful for volatile markets, for example oil trading.
Why Trade the News on Forex Trading?
Countries around the globe regularly publish statistics tracking areas such as their labour markets, gross domestic product (GDP), retail sales and inflation.
This news provides fresh information on how an economy is performing and strongly influences the price of currencies. Currencies are effectively confidence indicators for countries, so news releases often trigger a high level of volatility in the forex market, creating a variety of opportunities for forex traders.
How to read economic calendar
The markets tend to price in the economic outlook future periods of time. As rule of thumb, economic growth means future prosperity which then equals to a strengthening of the country's currency. Traders look for these upticks in economic growth (positive economic releases) as they usually offer opportunities to jump on an uptrend. In contrast, economic reports showing a slack in economic growth result in the weakening of the country's currency. So, the future value of a currency is defined based on whether the actual data hits, misses or exceeds the forecast level.
An economic calendar is a key tool that helps traders not to miss important events. Its structure is simple. Economic indicators are listed in a table for a chosen period of time. Next to a particular indicator you will see three data columns: previous reading, forecast, and actual reading. Before the release, the calendar contains only the previous reading and the forecast. The actual reading appears at the time of the release.
For learn more how to read forex economic calendar perfectly, click here...
Forex News Trading & Fundamental Analysis
The Forex market is influenced by the major events in the world economy, but also by the lesser events known to the general public. The economy of a country has a direct influence on the evolution of the national currency. That is why it is important to know the events that can mark the evolution of a currency in one way or another, as well as their correct interpretation.
In order to correctly understand the evolution of a currency, it is important to analyze all factors in the economy that can influence its exchange rate. This analysis is known in the world of brokers under the name of fundamental analysis because it is based on the economic fundamentals behind the mechanism of the exchange rate.
The currency market is directly influenced by national and international economic and political developments. Government actions, tax policies, trade union protests, wage increases, conflicts, international treaties, labor migration, speculative announcements, national bank policies, and many other events of this type have a major impact on the exchange rate on the international market. The important economic events cause changes in the demand and supply ratio on the foreign exchange market.
During a news release a number of speculators will react immediately, hoping to gain a quick profit and exit. These will create a very brief ballooning of spreads and volume in the immediate term, but also will distort the underlying technical picture greatly. As these initial buyers or sellers exit, momentum traders will attempt to join in and fuel a more sustainable short-term trend with their actions. Depending on the time and liquidity in the market, they may well be successful, but sometimes they too are checked by previously unknown order layers that check the advance of the price. When these absorb the momentum traders, and short term speculative entrants, the initial reaction of the price may be reversed or negated also.
But while this is so, we do not imply that it is not possible to trade the news in the forex market. All that must be born in mind by the trader is that he's engaging in a game of probability; he must be very well aware that there doesn't exist a news release that will ensure that the market will move in this or that fashion. Stop loss orders must not be very tight, and leverage must be kept quite low, so that the order we enter can survive more than a few seconds of the initial shock reaction by short-term actors.
Top 3 News Trading Strategies
The Classic Strategy
The classic news-based trading strategy involves an expert knowledge of the released economic data, and how it affects the market.
You have to understand the effect the news may have on the market when the forecasted value of the news report differs from the actual value by little or much. Knowing this helps you predict the effect of the news on the currency pairs you're trading.
The Breakout (Straddle) Strategy
This might be the strategy for you if you know nothing about interpreting the news but hope to profit from trading it. The breakout forex news trading strategy allows you to prepare for a breakout in either direction without worrying about what the news says. Here is how you do it.
Step 1. Open the lowest timeframe on the chart of the currency pair you wish to trade. Do this minutes before the release of the news.
Step 2. Usually, there is a brief period of consolidation and low volatility before the release of important news. Set buy and sell stop orders at about 10-15 pips above and below the support and resistance levels bounding the consolidation.
Step 3. Protect both orders with stop losses placed about 15 pips off your entry points.
Step 4. The moment the breakout triggers one of your orders after the release of the news, cancel the second order. And as the price goes in your speculated direction, pursue it with a trailing stop loss placed a few pips away, to claim the pips you've gained.
This strategy is like the straddle news trading strategy. Both have no care for what direction the news would drive the market. You only look to profit from the pair, irrespective of what the news says.
You can learn more about forex news trading strategy at forum.forex
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