Trading the News Strategy in Forex
Many Forex trading strategies enable us to evaluate the price action from many distinct perspectives. However, these trading policies only offer us the technical. There is one factor that can render all the technicals meaningless and influence the market in whatever manner it wants. Significant News incidents from distinct nations can have an enormous impact on the market, making all our technical analysis pointless. This is why trading the news in forex is important too – otherwise known as Fundamental Analysis.
The forex market is a daily market, and news from anywhere in the globe can come in at any time. Market changes based on financial news and information can affect any trader wherever he may be and whatever currencies he chooses to trade. If you’re in Asia and you like to trade the YEN, there’s almost daily news from Japan. If you like AUD or NZD, watch out for news from Australia, New Zealand, and China. The same goes for EUR, GBP, and USD; if you live near European time zones, you have to check the news in the morning and afternoon.
In stocks, the announcements of corporate income, revenues, profits per share, sector, macroeconomic information etc. could be regarded as significant news. In forex trading, central bank minutes and members press meetings, inflation reports as well as domestic and global financial news and information could be significant news that affects the markets.
One of the first lessons for fresh traders is that during significant news releases, you should stay out of the market when trading. Nevertheless, during the news, we often discover ourselves trading and most of the moment, it is not due to greed. Some love the adrenaline, some are addicted, but most traders do like the earnings. After all, we are to make money in this company, and the risk is a part of the game.
There are always two currencies involved in trading currencies. When a trader plans to open a place, the upcoming news from both countries and any other global news that could possibly influence the pair should be taken into account.
For example, if you decide to trade AUD / JPY, apart from evaluating the possible outcome of the news from Japan and Australia and the effect it might have on the pair, you should consider important upcoming news from Europe, the USA or elsewhere because that news might shock the financial markets. If there were really excellent economic data published from China, the pair would rally because it implies that demand is likely to boost for Australian products. If there were really bad news from Europe, we could expect the opposite; the global financial market would be shocked, and the traders would run for safe havens like YEN and CHF.
Below are the most important economic data and news and their effect on the country’s currency when the numbers beat expectations:
- Consumer and Business Sentiment –> (+) Good
- Unemployment Claims –> (+) Bad
- Unemployment Rate –> (+) Bad
- Inflation (consumer and producer prices) –> (+) Good
- Interest Rates –> (+) Good
- Trade Balance –> (+) Good
- Home Sales –> (+) Good
- GDP –> (+) Good
- Retail Sales –> (+) Good
- Services and Manufacturing PMI –> (+) Good
Now that we’ve established the importance of understanding the news and the effect it might have on the price, we have to learn how to use news releases to our advantage. There are two ways to use news strategy trading–long-term and short-term.
Long Term Trading the News in Forex
It is essential to evaluate both preceding and current information when searching for long-term trading possibilities based on financial news. This is because it takes weeks or months to absorb news from the industry sometimes. We can use the information to see the bigger picture and the currency effect it could have. Long-term trends are developed by basic factors that over a certain period of time are many financial pieces.
Looking at some of the latest GBP / USD graphs, we noticed that an uptrend had begun to take shape a year ago and has since been a one-way trip. Similarly, for about the same period, EUR / GBP had been in a downward trend. But these developments have not started out of the blue. Over the previous two years, or even longer, the economic data that came from Britain has made this possible. Most of the news showed the British economy’s imminent recovery long before the trend began to form. If the information were properly read and evaluated by a trader, he/she would have purchased the Pound last summer and pocketed around 2,500 pips.
Sometimes a single news event creates long-term patterns, particularly when that event is something that the market at the time is vulnerable to. This was the situation when the ECB announced that it would expand monetary policy, cut Refi rates and introduce adverse rates of deposit. That intended that the market would flood more Euros, and we understand that it becomes cheaper when something is in excess.
For quite a while, the market was waiting for that case. Euro dropped about 160 pips and a total of about 500 pips. Since then, it has created a downtrend, breaking level after level without any technical ability to stop it.
Short Term News Trading
Intraday news is a bit harder due to volatility and tighter stops. Usually, there are whipsaws 1-2 minutes before and after, with the price moving frenziedly in both directions. Short-term news trading is divided into several strategies:
Selling bad news spikes
One way is to sell the spikes after bad news or vice versa. Sometimes the price jumps for a couple of seconds or minutes even after really poor information. That’s the best time to sell, particularly if it’s on a large or resistant stage. Following the failure of FED Chairman Yellen to deliver on the Tapper on June 18, which is an adverse dollar, USD / CAD jumped 30 pips to 1.09 just to reverse on a 150-pip drop.
Buying after poor news leads a peer to form an uptrend due to prior excellent data. Although rare, worse than expected news cannot be ruled out, although the general view of the scenario will not be affected. So, we should look for the knee jerk reaction after an original collapse.
On June 25, when the US GDP was much worse than expected, this happened to the USD / CHF. The pair had been in an uptrend with very good data for about two months, so one piece of news wouldn’t be able to upset that. The couple instantly dropped about 30 pips and then bounced back right.
Bad news does not always lead to a lengthy downtrend, the downturn may be temporary, and then the price begins to push back to its prior level.
The price is often restricted to a narrow range before significant news, unsure of the path it should take. This scenario is best traded on both parties with pending orders–selling a break below and buying a break above. To prevent whipsaws, it is recommended that the orders be positioned significantly away from the range.
It’s not simple to anticipate the news and read price action, but like all things, experience makes it simpler. Additionally, a very lucrative approach has potential.
The production PMI was anticipated to be re-allocated on May 1 at 8:30 am GMT. The consensus on the market was for a reduced reading, but with the latest excellent information, chances were the figures would exceed expectations. Looking right before the launch at the 15 min candle on GBP / USD, it jumped some 25 pips, suggesting that expectations would beat the information, and so it was. So, purchasing and locking it at break-even during that jump is a good option. Then came the news, and the remainder is history.
The same thing occurred with the GDP figures on April 15. Before the launch, the 3 hourly candles were really bullish, pointing to information that was better than anticipated. So, the best thing was to purchase some profit in the centre of the second candle before the news release. It jumped 60 more pips after the news.
Actually, trading the news is not just another forex trading strategy to add to your arsenal, but an entirely different way of trading forex. To master forex trading completely, this must, of course, be mixed with other forex trading approaches that depend on technicals rather than fundamentals and you should put together trades based on all the factored information.
Knowing all this, we have to consider some other important factors which are also important with regards to trading the news in forex.
What Currencies Are We to Focus On?
We know that others are many currencies today when it comes to trading. However, there are certain currencies whose information are of significance to how well or bad you to with regards to trading. Here are the eight major currencies:
- U.S. dollar (USD)
- Japanese yen (JPY)
- Swiss franc (CHF)
- Australian dollar (AUD)
- New Zealand dollar (NZD)
- British pound (GBP)
- Canadian dollar (CAD)
- Euro (EUR)
Here are samples of more liquid derivatives based on the currencies mentioned above:
When Are News Releases Issued?
Apart from knowing the importance of these releases, it is also essential to know when they are released as well. A deep insight into this information is vital to how you make the most of your trade decisions.
|U.K.||GBP||2:00 to 4:30 a.m.|
|Italy||EUR||3:45 to 5 a.m.|
|New Zealand||NZD||4:45 to 9 p.m.|
|Australia||AUD||5:30 to 7:30 p.m.|
|Canada||CAD||7:00 to 8:30 a.m.|
|Germany||EUR||2:00 to 6 a.m.|
|France||EUR||2:45 to 4 a.m.|
|U.S.||USD||8:30 to 10 a.m.|
|Japan||JPY||6:50 to 11:30 p.m.|
|Switzerland||CHF||1:45 to 5:30 a.m.|
What Are the Key Releases?
The first thing you need to understand when trading news is what releases are actually anticipated that week. Second, knowing which information is essential is essential for you. Generally speaking, for any country these are the most significant financial releases:
- Surveys of consumer confidence
- Balance of trading
- Surveys of the manufacturing sector
- Industrial manufacturing
- Surveys of business sentiment
- Interest rate decision
- Sales in the retail sector
- Inflation (the price of the customer or of the producer)
The relative significance of these releases may alter depending on the present state of the economy. For instance, this month unemployment may be more crucial than choices on trade or interest rates. It is therefore essential to keep up with what the market is currently concentrating on.
How Do I Avoid Getting Hit by Volatility When Trading the News in Forex?
The solution to catching a volatility breakdown without the danger of a reversal is to trade options brokers with new options. A range of exotic options is offered by various new brokers. These exotic options usually have levels of barriers and will be lucrative or unprofitable depending on whether the level of barriers is violated. The payout is predetermined and the payout is based on the premium or cost of the alternative.
The following are the most common kinds of exotic media release alternatives for trading:
- Double one-touch option
- One-touch option
- Double no-touch option
A double one-touch option has two barrier levels. Before expiry, either one of the levels must be breached so that the option becomes lucrative and the payout is received by the customer. If no barrier level is broken before expiry, the option will expire uselessly. A double one-touch option for news releases is the ideal alternative to trade as it is a pure non-directional breakout game. The payout is created as long as the barrier level is broken— even if the price later reverses course.
A one-touch option only has one barrier amount, which is usually less costly than a double one-touch alternative. The same criterion holds — the payout is produced only if the barrier is breached before expiry. This is a useful choice to purchase if you really see if the amount is going to be stronger or weaker than the consensus forecast from the market.
The precise opposite of a double one-touch option is a double no-touch option. There are two barrier levels, but in this case, before expiration, no barrier level can be breached — otherwise, the payout option will not be made. This choice is good for news traders who believe that the financial release in the currency pair will not cause a pronounced breakout and that it will continue to range trade.
These options are a viable alternative for those who don’t care to get whipsawed by undue volatility in the markets before they actually see the spot price moving in the direction they want.
Summary and Tips
You must bear in mind that when the news is released, the market is not in its normal state. At this point, trading risks are increasing, and sometimes you have to pay literally for the enthusiasm of trading the news in forex.
However, if you handle the risks well, you can get a nice profit from the significant price movements.
The most important things we want to recap are:
- Do not expect too much from trading news. You’re not going to get disappointed in this way, but you may be surprised. We all know that when expectations are high, I mean seriously high, you might lose your composure and finally give up trading overall.
- Don’t expect the market to respond to small-scale events. From time to time, the significance of various releases shifts. Some events have more significant impacts on the market than others, leaving you to select events of high importance to trade.
- If market conduct looks too strange after the media release, it would be wise to wait for another trade chance. This is the right thing to do because if the patterns you are expecting do not turn out as expected, it would be best to wait till you are sure (certainty is not a factor but when you see red flags, wait for them to change).
- Resisting the urge to do things in a hurry. As we have mentioned a couple of times, trading is an art and the minute you begin to rush something that needs patience, practice and precision; you might end up on the wrong side of things.
- Finally, always stay acquainted with what is happening in the worldwide economy and maintain track of the disposition and expectations of the market.
As we have seen, the currency market is particularly susceptible to short-term movements caused by the release of financial news from both the United States and the remainder of the globe. If you want to trade news on the FX market effectively, main factors to keep in mind are knowing which releases are expected when, which releases are most essential considering the present financial circumstances and, of course, how to trade on the basis of this market-driven information. There is a range of exotic options for traders who want to catch a volatility outbreak without the danger of reversal. Do your studies and keep up with financial news, and you can reap the benefits.
Talking from a factual standpoint, rather than based on forex information, it takes a lot of things to succeed in the world of forex trading today. Trading the news in forex is a robust topic when it comes to trading, and it would take a lot of determination to make the most of what the market has to offer.
Coupled with a lot of other factors used for successful trading, this is a game-changer which as we have highlighted can be of considerable significance to your profit or loss margins. The news is not something you stumble upon. This article has news release times for different currencies, which when you follow, you will not miss the window of opportunity available to you.
Many people have this information, but only a few make good use of it. Information, no matter how good it is of less significance without proper use.
Don’t take my word for it, take it from those who know the essence of seizing opportunities:
Men make history and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skilful leaders seize the opportunity to change things for the better.
Harry S. Truman
It’s when ordinary people rise above the expectations and seize the opportunity that milestones truly are reached.
You’ve got to seize the opportunity if it is presented to you.
Small opportunities are often the beginning of great enterprises.
Luck is what happens when preparation meets opportunity.
Seneca the Younger
There is no security on this earth; there is only opportunity.
I was seldom able to see an opportunity until it had ceased to be one.
Whatever you can do, or dream you can, begin it. Boldness has genius, power and magic in it.
W. H. Murray
With each game I play, with each season I play, I’m running out of chances. You’re never guaranteed next year. You’re never guaranteed the next game. You have to seize the opportunity when it’s there in front of you.
Too many people are thinking of security instead of opportunity. They seem to be more afraid of life than death.
James F. Byrnes
The Gods cannot help those who do not seize opportunities.
As you grow older, you’ll find the only things you regret are the things you didn’t do.
Opportunity is often difficult to recognize; we usually expect it to beckon us with beepers and billboards.
William Arthur Ward
The best revenge is the massive success.
The right man is the one who seizes the moment.
Johann Wolfgang von Goethe
The only things you regret are the things you didn’t do.
It is clear the future holds great opportunities. It also holds pitfalls. The trick will be to avoid the pitfalls, seize the opportunities, and get back home by six o’clock.
Opportunity is missed by most people because it is dressed in overalls and looks like work.
Thomas A. Edison
You may delay, but time will not.
Sometimes the course of our lives depends on what we do or don’t do in a few seconds, a heartbeat, when we either seize the opportunity, or just miss it. Miss the moment and you never get a chance again.
Seize every opportunity along the way, for how sad it would be if the road you chose became the road not taken.
Every day you have the opportunity to learn and experience some-thing and some-one new. Seize the opportunity. Learn and experience everything you can, and use it to change the world.
Rodney Williams Jr.
All the best……