How to Trading with Forex News – See Some Tips

trade with news

Trade news is one of the main sources of fluctuations in exchange rates. Often, even a rumor about a possible interest rate cut by a country's central bank can have a substantial impact on quotes, which can move thousands of pips in a matter of minutes.

In the Forex market, all strategies based on traders' reactions to macroeconomic events that are happening in the world are now called trading the news. In short, as soon as the news breaks, a trader opens a position, the market reacts and the trader makes a profit.

Theoretically, trading with news on Forex is one of the simplest strategies, which is particularly relevant for traders intraday.

However, in practice, using this type of strategy requires a thorough understanding of the mechanisms behind the market reaction to press releases. Let's review these mechanisms in detail and understand how to use them the right way.

The importance of news for the Forex market

The importance of news for the Forex market

When you trade Forex news, you need to understand that the main factor is not the news itself, but the reaction of other traders to it.

All traders know the news that is about to come out, they analyze it, consider it in their predictions and set their expectations based on it, thus changing the market. Therefore, an experienced trader makes his predictions not based on the news, but on the expected changes in the quotes of the chosen assets that will follow the press release as a result of the actions of other traders.

Technically, the news trading system is relevant to any trader because all rate fluctuations are usually linked to the news.

We see more active trades each time economic publications are released (they are released based on a specific schedule). On the other hand, the market reaction to economic events is almost always uneven.

Different assets react differently to the same news. Therefore, the task of the news-based strategy in Forex trading is to find the event that will most impact the chosen asset.

The more significant the event and the more it impacts the target segment, the greater the volatility of assets after the news is released. News trading strategy requires knowledge to succeed.

To properly prepare for the market reaction to the news, you must know the news in advance. For this, traders use economic calendars and actively monitor major news channels (e.g., Bloomberg).

Forex News Trading Pros

The first and biggest benefit is the likelihood of considerable fluctuations in quotes after the event is announced. With this, traders know the catalyst of the market movement and see the scale of that movement. Basically, they have everything they need to make the right decision.

This brings us to the second benefit of trading Forex news — traders have the opportunity to determine the most liquid assets immediately and react to them accurately, without regard to additional factors. The news trading strategy does not require technical analysis; it can be used as a completely independent method.

types of news

The news trading strategy takes into account two types of events — unexpected and periodic. In most cases, traders work with periodic events, those published on time (the aforementioned Economic Calendar).

As the time of the news release is known in advance, traders can prepare and by the time the news is released they will know how it will impact the market and how other participants will react.

Unexpected events include natural disasters, military conflicts and other geopolitical phenomena that cannot be predicted.

However, you have to know how to work with them, or rather how to react to them, quickly analyzing the price chart, because unexpected events are what make quotes take big turns.

Forex news trading examples

We have already said what the trader's main task is — to find an event that will have the greatest impact on the quotes of the assets they have chosen to trade.

Several sources are used to facilitate locating such events:

  • economic calendars. They are often published by brokers for trading with news and, if necessary, such calendars are easy to find online.
  • Built-in features of trading platforms. Today, almost all platforms (eg MT4 and MT5) have built-in news indicators, which you can configure to be displayed directly on the platform's charts.
  • news channels. They are mainly used to monitor unexpected events, but also provide relevant information about planned events.

For convenience, events are classified by significance, with the most important ones causing greater asset volatility.

A specialized feature of trading platforms, as a rule, gives its own rating to news. Economic calendars also feature expert forecasts for each event.

You can safely use these indicators, but you can also conduct your own analysis and select the optimal event for your own strategy based on the news in Forex trading.

Experienced traders, who have understood the full depth of fundamental analysis, say that care needs to be taken when working with the news, because on the one hand, knowing current economic processes (central bank rates, level of unemployment, etc.) an excellent idea about price movement.

However, on the other hand, unexpected events (say, the bankruptcy of a large niche company or the resignation of an important political figure) can completely reverse this situation in a matter of seconds.

Each news impacts the market in its own way. Furthermore, each event impacts each specific asset and the relationship between the assets. The secret to the best strategy for trading news is, as we mentioned before, to be prepared for the event in advance and set deferred orders to open positions in advance.

  • Waiting for the press release
  • On the eve of the press release
  • Press release and market reaction

Let's review these three stages of Forex news trading strategy in detail, using illustrative examples to show what a trader's actions should look like at one point or another.

  • Waiting for the press release

Let's assume that the Federal Open Market Committee (FOMC) is expected to release its latest report in a few days. It is one of the main events of the economic calendar.

Several days before launch, experts begin throwing their analytical opinions and predictions into the information space.

You should not only rely on experts for decision making, but it is advisable to review their opinion to understand how the market is going to change in general and, more importantly, how traders will react to the event.

In order to trade Forex news successfully, you need to understand that now, with all the automatic software to manage quotes, the most liquid assets will be snatched in no time once the news is published.

This is why preliminary analysis is so important — establishing deferred orders requires risk, and that's where Reuters, IDC and Bloomberg market shark analysis comes in.

  • On the eve of the press release

Depending on the scale of the event, it could be a period of several days to several hours before launch.

By this time, all traders trading on Forex news have already 'placed their bet'. Here, we can observe the biggest paradox of the news trading strategy: the event is the catalyst for the change in quotes and this is true.

However, prices start to rise before the news is released, as orders have already been placed in advance.

When the news comes out, the market reaction will be small, as by then the orders have already been placed and the release of the news doesn't change anything for anyone.

  • Press release

No matter how perfect your strategy for trading news is, there can be three options at this stage:

  • The situation is consistent with the forecast;
  • The situation is better than the forecast;
  • The situation is worse than the forecast.

Returning to the paradox, how should the market react if the forecast came true and was positive? Growth is to be expected, right? But we already know that traders who expected this result already bought the assets and made a profit. So there will be no growth, at least not active.

If the press release turns out to be worse than anticipated, there will be fewer buyers because most will decide to cash in on bets on asset weakening. And at that time, the price can drop significantly in a matter of a few hours.

Finally, the third option is the most complicated in the news trading strategy. If the press release is better than expected, the price should theoretically go up.

However, this is only in theory, because in practice a colossal number of simply unpredictable factors arise in this situation.

For example, there will be traders who will profit from exiting long positions, causing prices to fall. In this case, however, the fall will be short-term.

Examples of economic calendar trading

In the screenshot of the economic calendar below, you can clearly see that the pound sterling is showing an excellent position.

If we are trading on Forex news, the strategy in this case leads us to choose a highly volatile GBP/JPY pair. Why Japanese Yen? Because at the time the screenshot was taken, the Japanese exchange was closed and could not have any impact on the market.

Examples of economic calendar trading

Many traders believe that trading binary options based on the news is the most profitable option as there is no spreads, while the guaranteed profit is 70 – 80% of the trade size.

Therefore, the trading strategy binary options based on Forex news in our case implies opening a trade for the increase in the price of the GBP/JPY pair.

Once again, the Japanese market has no impact on the yen at the moment, while the economic calendar promises to strengthen the pound sterling's position.

We set the condition “BUY” and set the time period to 6 minutes. In this period, another tsunami did not hit Japan and a revolution did not take place in the UK, so the price predictably increased.

Here's another example, this time with a US dollar. We opened an economic calendar and revised US data. The image below shows the news about the major indices, which we need to implement our binary options trading strategy based on the news.

As in the previous image, we can see the latest information about the newly released news (the first column), the expert forecasts about the indicator (second column) and the result of the previous announcement (third column).

See business activity? Its index is lower than expected and lower than before, which means the price of the US dollar will fall.

We selected the pair with the Japanese yen (USD / JPY) on the trading platform (again, because the exchange in Japan is not open at the moment), we specify the condition “SELL” and set the period to 5 minutes.

Again, there are no earthquakes or meteorites falling in Japan; therefore, the US dollar is falling against the yen as the term expires. Having invested $70 in the operation, we gained $53,9 of net income.

This is how news trading works. At binary options, as we've already said, are perfect for using these strategies.

How and what kind of trading news should I monitor?

Theoretically, trading with news on Forex is one of the simplest strategies, which is particularly relevant for Intraday traders.

Trading Forex news means working not only with the economic calendar. Considering that almost all new traders work with pairs where the US Dollar is one of the currencies, they need to focus on local US news releases.

Strictly speaking, these news releases are important to all currency pairs, because the American economy is dominant.

Here are the events to monitor first:

  • The so-called 'job report' (shows employment status);
  • Federal Reserve System rate information;
  • Report on GDP and price index;
  • Reporting on indices — 'business climate' and 'economic outlook'.

However, these reports are not enough for news trading (including options trading) because there are also the European Union, New Zealand, Australia, Japan and a number of other economically powerful countries that have their own events and these events certainly have an impact on the global market.

So how do you 'get' their news? After all, it's pretty hard to watch a dozen channels a day without taking a break.

To ensure successful Forex trading based on news, you need to monitor several key indicators.

This includes the central bank interest rate, inflation and unemployment, retail sales and industrial production growth. In addition, research and reports on business, production and consumer sentiment are also important.

However, watching and considering all these press releases takes so much time that no trader can afford it.

Therefore, based on the current global market situation, you will need to independently decide which announcements are most important at the moment (consumer price index) and which can be waived for the time being (e.g. unemployment report).

On the other hand, meetings of the Federal Open Market Committee are always the events that strongly impact all pairs with the dollar. This is the biggest complexity of Forex news trading — you must filter it skillfully.

You cannot do this without experience, which you will gain as you practice regularly.

Which currency pairs are best to trade on the news?

It seems logical that the Forex news trading strategy is easier to implement with pairs where the US dollar is a currency. It's true, but not for all pairs.

Here are the combinations generally recommended for beginners:

  • EUR / USD
  • GBP / JPY
  • USD / JPY
  • EUR / CHF
  • AUD / USD
  • CHR/JPY

It is easier to trade these pairs as the absolute majority of local news impacts their quotes. However, you can also trade gold or, for example, oil based on the news.

trade cryptocurrencies news is also possible, but it can be a little difficult for new traders in terms of monitoring important events.

Details of a strategy with news for beginners

For simplicity, the strategy consists of two steps. The first step is to determine the range of news channels that show the most important events in the global economy.

The second step is to select the currency pair that will be most affected by the news you monitor. Then all you have to do is monitor the channels and 'place your bets'.

Here is a universal version of a Forex news trading strategy for beginners:

  • If you find a significant event related to the US dollar, it will mainly change the volatility of the USD/EUR pair.
  • If you have found an important event related to any other currency, it is better to choose the pair with this currency and the US dollar.

For example, are you monitoring the ZEW report and you can see that the Swiss franc is about to go down, so you take the USD/CHF pair.

This news trading strategy will be the simplest for beginners and will involve the least risks. Most importantly, it will teach you how to find the right news and make relevant predictions.

The advantage of trading news is that the trader knows in advance when the news they need will be released.

This means that traders do not need to spend a lot of time working, analyzing and predicting only short periods of time at set intervals. This process will take less time as you gain experience.

Examples of press releases and how they impacted quotes

  • The US unemployment report released in December 2015 showed that employers added 290.000 jobs, albeit from the planned number of 185.000, while the unemployment rate held steady. Immediately after the release of the report, the euro's rate against the US dollar fell by 0,06%.

 

  • Also in December 2015, news was released informing about a significant drop in industrial production in China. After the news broke, the yuan fell against the dollar from 6,45 to 6,58, which was entirely predictable.

 

  • In January 2016, François Hollande announced that unemployment in France was 10%. Government bonds instantly dropped by 3%, although the government was prepared for this by introducing an emergency economic recovery plan. As a result, bonds rose by 5%, covering the fall.

In the previous three examples, the outcome of the press release was indeed predictable, which allowed traders to profit well from it. Now, let's look at a situation where a chain of events led to a tricky ending.

In December 2015, the President of the European Central Bank announced that annual inflation had been revised from 0,3% to 0,1%.

The statement was followed by clarification that the inflation forecast for the following year was revised to 1,1% from the previous forecast of 1,5%, and for 2017 – 1,7% instead of 1,8%.

The following events seemed quite evident to everyone — the main euro index STOXX60 rises and the euro follows. The index rose, but the euro fell against the US dollar from 1,13 to 1,11.

This was caused by the actions of the international regulator — the interest rate on deposits was reduced by 0,2%, the margin lending rate stopped at 0,3%, while the refinancing rate was fixed at 0,05%.

As a result, the euro no longer looked as attractive compared to the US currency and traders started selling it in large quantities.

Forex News Trading Tips

Forex News Trading Tips

It is best to open the chart price on the chosen currency pair approximately 15 minutes before information about an important event is released.

A trader assesses the current market price of the asset and sets two defer orders — a Sell-Stop at 5 – 10 pips below this price and a Buy-Stop but at 5 – 10 pips above the current price.

Typically, the number of pips is determined by the volatility of the asset — if it is low, traders usually set 5 pips; if high — 10 pips.

Then the Forex news trading strategy provides for a short waiting period, and if the price starts to rise after the news is released, Buy-Stop orders are fulfilled and Sell-Stop orders are deleted.

If the price of the currency pair drops, Buy-Stop orders are deleted and Sell Stop orders are fulfilled. It is also possible that the market does not actively react to the event. In this case, both orders will be deleted and the trader will continue to analyze the communiqués waiting for a better event.

As we have already shown in the examples above, trading binary options based on news is simpler.

In the case of currency pairs, the typical algorithm involves opening two deferred orders: a sell order and a buy order — sell at a price higher than the current price and buy at a lower price.

The number of pips is determined by the volatility of the pair After the news is released, the market may not react and then both orders are closed.

This Forex news trading strategy sounds simple, but you shouldn't forget about the risks. High profits require high investments, which increases the risk of losing a substantial amount if the forecast is not correct.

When trading news, it is important to make decisions quickly. Working with Stop Loss orders is also quite risky, because in case of sudden price fluctuations, the risk of slippage is high, that is, the price may have already changed in the time it took the broker to deliver the trader's order on the exchange. interbank.

Slippage happens in highly volatile pairs in case of strong and sharp market reaction. You can't totally eliminate the risks, but you can minimize them.

Experienced traders have their own strategies for trading Forex news, but beginners may be advised, to begin with, not to rely solely on the economic calendar and press releases.

You always have to protect yourself against serious losses by setting Stop Loss orders at plus/minus 20 pips from the asset price when entering a position.

Also, it is recommended to use a Trailing Stop which can move the Stop Loss if the price increases. If you are using Trailing Stop, it is not necessary to set Take Profit, because the Stop will follow the price to the peak and close at the pivot point of the chart.

Theoretically, trading with news on Forex is one of the simplest strategies, which is particularly relevant for Intraday traders.

Trailing Stop is an advanced Trailing Stop tool used to automatically and continuously adjust your stop loss placement once the defined parameters are reached.

What factors beginners who decided to trade news should take into account:

  • Prepare all instruments in advance.

For traders who trade on news, this includes the economic calendar, carefully chosen news channels and, if necessary, built-in features of the trading platform.

  • The strategy also needs to be worked out in advance.

It seems like news operators just follow press releases, but that's not the case. We said at the beginning that traders' decisions change the market, not the announcements. News announcements only serve as a boost as you place your orders based on trends and volatility.

  • Always limit your risk level.

You should not submit to the temptation to establish a position too long or too short.only experienced sharks can afford to do this, and even they sometimes get it wrong.

Theoretically, trading with news on Forex is one of the simplest strategies, which is particularly relevant for Intraday traders.

the opposite of a short position is a long position, in which an investor buys or sells securities in the expectation that they will rise in value. An investor who takes a short position in bonds has a negative view of the market, while someone who assumes a long position has an optimistic outlook.

  • Follow the plan.

This means that even if the strategy is a loser, wait for the final market reaction. This type of waiting does not cancel out actions that aim to minimize risks, but every strategy needs to be applied to the end to know its pros and cons.

Some beginners believe that there are special Forex brokers to trade with news.

These brokers do not exist. However, you need to consider the quality of service and the availability of the broker's partners, as this affects the speed of transfer of orders to the interbank market.

 

What is Forex News Trading?
Trading Forex news is a strategy that involves monitoring important macroeconomic events and trading based on news releases about those events. This primarily includes regular reporting by major financial organizations (eg, US Federal Reserve System rate reports).
Where do I find significant events?
The economic calendar is a news trader's first and most important instrument; it can be easily found online. Additional but equally important sources are different news outlets, eg Reuters, IDC, Bloomberg. It is important for a trader to focus on news from the country of the currency they are working with.
What are the best assets to trade news?
Essentially, all assets including resources (eg gold) and cryptocurrencies can be traded. Many news traders choose binary options because there is no spread. As for currencies, beginners are recommended to start with pairs with the US Dollar, Australian Dollar, Japanese Yen, British Pound and Swiss Franc.
What is a typical strategy for trading news like?
A trader finds an important event and chooses an asset. Fifteen minutes before the news is released, he sets deferred buy and sell orders and also sets Stop Loss and Take Profit (or Trailing Stop). So, once the news has been released, the trader is simply waiting for the market reaction and closes unnecessary orders accordingly.

 

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