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Home » Binary Options Trading Blog » Forex News How to Trade

Forex News How to Trade

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Forex News How to Trade. Here’s a little secret about news trading: most of the time, the news does not change the movement of the market: it just speeds it up. When you couple 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 actually in 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 economic data releases, such as the famous Non-Farm Payrolls, and prepare to trade those currencies either shortly before or shortly after one of these major events. Of course, if something unexpected happens and they are alert at the time, they might seek to jump on that too.

Forex News How to Trade

There are a few different methods that are commonly used in news trading. Let’s look at each of them in turn and explore the advantages and disadvantages of each, before drawing a conclusion.

Forecasting the Outcome and Trading Before the Release

This might not be as dumb as it sounds, depending upon what it is you are 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 actually worse than fifty-fifty.

Forex News How to Trade

The advantage of taking an intelligent view in advance of a market news release is that you will probably get a very good price for your trade, without a high spread or any slippage. The disadvantage is that you will probably 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 a very wide stop loss to be sure of your trade surviving, limiting your potential reward to risk ratio.

Trading Immediately Upon the Release

This sounds logical: establish what the market is expecting, and the instant you see the expectations have been greatly exceeded or missed, open a trade accordingly. This will almost never succeed, for several reasons: liquidity will be very thin, there will be enormous slippage, the spread will be extremely high, and your broker might very well not even be able to give you a price.

Usually, by the time a retail trader can enter the market following major market news, the price is a very poor one. This might not matter if the event is a real game-changer like the U.S. Non-Farm Payrolls can be, but it will every other time.

This methodology is always a very poor one.

Opening Pending Orders Before the Release

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

In actuality, it is a very bad 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. You can easily find both of your trades opened and stopped out in a second or two, which is an extremely unpleasant experience!

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

Waiting for the Market to Digest the Release

This method requires some discipline, brainwork, and market analysis, but it is really the only way to trade the news. 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. Once you have made that decision, you then have to wait a few minutes and see where the price goes.

Forex News How to Trade

Your reasoning should then go like this: if the market news has really changed the outlook to be much more bullish, and the price is moving strongly bullishly, then wait for a pull-back and enter a long trade. If the news is very 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.

This method avoids the problems of slippage, thin liquidity, widening spreads, and poor execution.

Forex News How to Trade

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One Response to “Forex News How to Trade”

  1. tony • August 27, 2017 at 7:16 pm

    i still learn how to trade forex and i still use a forex demo account

    Reply

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