How to Trade News
Fundamentals, always a tricky part to trade with, because you don’t know what surprises you can get. Economic data is an important catalyst in the Forex market that tends to capture the attention of every trader.
Trading Forex news releases
News releases and events, if important can create massive short-term and long-term movements in the Forex market resulting in significant profits for some while losses for others. If you are prepared before hand and have done your homework then you can try to predict the news however, most of the time it will still surprise you. A lot of traders have different strategies when it comes to playing the news. Never think what will the news be and where will the market go, think what you can do and how you can take advantage out of it. There are some currency pairs like EURUSD, USDJPY, USDCHF, AUDUSD, GBPUSD, and NZDUSD that have high liquidity and are usually great for news trading. Why? Because of the liquidity, it gets very difficult to manipulate the price in those pairs. Here we will discuss some major points which you need to understand before trading a news release.
WHICH NEWS EVENTS ARE IMPORTANT?
The first and foremost question that you need to answer is which news releases and events are important. Economic data such as Retail sales, CPI, employment/unemployment rates, manufacturing outputs, interest rates, consumer confidence surveys, trade balance, GDP all these pieces of economic data triggers movement in the market. Some news effects the Forex market in such a way that the news is usually priced into the market based on the expectations the market as a whole has, for example the New Zealand rate hikes were known to the whole market, so they were priced in well before the rate hikes ever happened. At this point if the expectations are not met for example if there was no rate hike and the market was expecting one, the New zealand dollar would be selling off like crazy, but if the rate hike did happen, you wouldn’t see much action, maybe some profit taking would come in because the rate hike was already priced in.
WHICH NEWS RELEASES WILL AFFECT MY TRADE AND WHEN ARE THEY DUE?
Now comes the point where you think of getting into a position. There are many ways to getting into a trade, you could toss a coin? Maybe do a little hocus pocus and maybe you’ll know where your favorite pair is heading north or south today.. as much as I wish that worked it doesn’t! Before you get into a trade, you should always check out the economic calendar for data releases that could affect your pair. Let’s say you want to trade EURUSD because of the ECB Monetary statement and press conference, this pair is sure to move like crazy. That’s fine but one important thing that most traders miss out is other news releases that can also affect their pair. There are many releases of data all week relating to that pair but the main focus remains on the ECB monetary policy, you should also be aware that any US related news could also affect that currency in a big way. Know when relevant news events are taking place and what the expectations are so you can be ahead of the game. When is the perfect time to go long or short? Or should I just put limit or stop orders? These are the decisions that you have take beforehand but after carefully looking at the chart. Never be in a rush to get into a trade.
TIPS TO TRADE THE NEWS :
- Plan how you will enter the trade. Basically it depends on your trading style. If you are a scalper you may want to get in at that time or if you are a position or a swing trader you may enter before or after depending on your game plan. If you’re a smart trader, you’ll probably wait for the news and let it give you a nice direction, though you may get in a little late but you’ll have better odds.
- Use your charting ability to draw support and resistances. Identify entry and exit points. Don’t put stop losses, sell limit or buy limit too close because of the fake breakouts, or spikes that may occur in any important news event so that you may not get stopped out just because of an unusual spike.
- Don’t get yourself caught in a hype created by certain market analysts or that you may hear in certain trading forums, try to use your knowledge and do homework before planning the trade. Expected figures for a given data is also important because market is priced in expectations, if the numbers come out as per expectation then there is no huge movement but if it comes out under or above expectations then you will see some real action. So you have to be prepared either way.
How often do you trade the news? Any unique trading method or strategy you have that you use to trade news events?