Forex News How To Trade

Forex News How to Trade

Forex News How to Trade. Here’s a little secret about news trading: most of the time, the news does not change the market’s movement but speeds it up. Coupling this with the fact that the market tends to range most of the time – especially after a sharp move in one direction – you realize that most news trading opportunities are trading against the initial movement instead of an expected follow-through.

Many Forex traders like to trade the Forex market news. They check an economic calendar of major scheduled financial data releases, such as the famous Non-Farm Payrolls, and prepare to trade those currencies either shortly before or shortly after one of these significant events. Of course, if something unexpected happens and they are alert at the time, they might also seek to jump on that.

Forex News How to Trade

There are a few different methods that are commonly used in news trading. Before concluding, let’s examine each of them and explore their advantages and disadvantages.

Forecasting the Outcome and Trading Before the Release

Forex News How to TradeThis might not be as dumb as it sounds, depending on your forecasting.

For example, if you think, after extensive analysis of the economic data and the track records of the personalities involved, that the Reserve Bank of Australia will almost certainly cut their interest rate tomorrow, while the market thinks this is an unlikely outcome, then you might have an intelligent reason to open a short trade in the Australian dollar. Otherwise, you are just gambling, with the odds against you worse than fifty-fifty.

The advantage of taking a philosophical view before a market news release is that you will probably get an excellent price for your trade without a high spread or slippage. The disadvantage is that you will likely experience a period of high volatility in the minutes leading up to the announcement, which will either make the price hit your stop loss or ensure that you will need an extensive stop loss to be sure of your trade surviving, limiting your potential reward to risk ratio.

Trading Immediately Upon the Release

This sounds logical: setting up what the market is expecting, and the instant you see the expectations have been greatly exceeded or missed, open a trade accordingly. Unfortunately, this will rarely succeed for several reasons: liquidity will be very thin, there will be enormous slippage, the spread will be extremely high, and your broker might not even be able to give you a price.

Forex News How to Trade Usually, when a retail trader enters the market following significant market news, the price is inferior. This might not matter if the event is a real game-changer as the U.S. Non-Farm Payrolls can be, but it will every other time.

This methodology is always inferior.

Opening Pending Orders Before the Release

Forex News How to Trade It might seem like a good idea to wait for a significant market news release like the U.S. Non-Farm Payrolls or the FOMC Meeting Minutes, and just before the departure, place pending orders with your broker to buy maybe fifty pips ahead and sell maybe 50 pips below.

It is a terrible idea because liquidity gets so thin in the seconds just before and after a major news release that the price and spreads can go just about anywhere. As a result, you can easily find both of your trades opened and stopped out in a second or two, which is a highly unpleasant experience!

Even if you get it right, you are still very likely to suffer massive slippage on a triggered trade if the outcome is vital.

Waiting for the Market to Digest the Release

This method requires discipline, brainwork, and market analysis, but it is the only way to trade the news. First, you must compare the result of the news release with the market’s expectations and decide whether it has fundamentally changed the market’s sentiment on that currency. Then, once you have chosen, you must wait a few minutes and see where the price goes.

Forex News How to Trade

Your reasoning should go like this: if the market news has changed the outlook to be much more bullish, and the price is moving intensely bullishly, wait for a pull-back and enter a long trade. On the other hand, if the news is bullish but will not change the fundamental outlook – which is a much more common result – and the price is moving very bullishly, wait for a pull-back and then enter a reversal trade.

Forex News How to Trade This method avoids the problems of slippage, thin liquidity, widening spreads, and poor execution.

Forex News How to Trade

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