News Trading is an important part of any forex trader. That’s right today, we’ll be tackling Fiat currencies as opposed to the cryptocurrencies also offered by AltumFx. So, one of the things that affect fiat currencies is the news that comes out in any given country. By news, we mean economic releases, geopolitical news, natural disasters, etc. Basically, anything that can affect a certain currency is considered “news”.
We won’t go into all the types of news that can affect currencies, instead we will focus on Economic Releases, as those are the most frequent. Some of these events happen every week, while the majority happen once a month. So there are always opportunities to present themselves in the market for those who wish to go down this path of trading the news.
When it comes to trading the news, most investors choose to head towards the most liquid instruments as it would provide them with the best available prices, and that’s where most of the influential news gets released.
These instruments are:
Now that you know which currencies to watch out for when trading the news, it’s also important to know which news events will most likely affect a certain currency.
We have to warn you, trading news is harder than it may sound. There are a lot of moving parts when it comes to this type of trading. Not only is the reported consensus figure important, but so are the revisions to previous reports. Also, some releases are more important than others; this can be measured in terms of both the significance of the country releasing the data and the importance of the release in relation to the other pieces of data being released at the same time.
What are the Key Economic Releases?
When trading news, you first must know which releases are actually expected each week.
An easy way to know that is to check the Economic Calendar, it will show you all the events for the week as well as what’s important to watch out for. Here are the top events that you should be looking at:
1. Interest Rate Decisions
2. Retail Sales
3. Inflation (consumer price or producer price)
5. Industrial Production
6. Business Sentiment Surveys
7. Consumer Confidence Surveys
8. Trade Balance
9. Manufacturing Sector Surveys
However, this setup is not set in stone and can be changed as sometimes the Unemployment figure is more important than the interest rate decision and hence you should be focusing on that. Keeping an eye out to all news in the market is of high importance. Like we said, not an easy thing.
How to Trade the News?
There are many ways to actually trade the news. We are going to show you some of the ways to get you started.
Trading on Expectations
This is also known as, ‘buy-the-rumor and sell-the-fact’.
The idea is very straightforward: you should understand the market’s sentiment in relation to a particular currency and open position according to the direction of this sentiment.
Short-term sentiment is defined by economic news. If market participants expect the data to exceed the consensus forecast, they will take this into consideration. For example, if market participants wait for the Reserve Bank of Australia to raise its interest rate, the exchange rate of the AUD will be rising before the bank’s meeting (the probable rate hikes will be well priced in by the time the actual RBA meeting takes place). Once the RBA raised its interest rate, those market participants who had been ready for such turn of affairs would probably start selling AUD/USD and the pair would actually decline and not increase after the rate hike.
Trading on Spikes
This strategy can be applied when you trade on the very important news or economic releases such as Non-Farm Employment Change (Non-Farm Payrolls – NFP). It’s one of the most influential statistical indicators. It measures the number of jobs created in the nonfarm sector in the US in a month. NFP is released on the first Friday of every month. The chart below shows the latest NFP release (March 2021):
Non-farm payrolls may send lots of shockwaves to the technical charts. That’s why many traders prefer to wait for the dust to settle and trade when they grasp a better idea of the effect the release has produced.
Your actions before the release: look at the range in which the pair is trading at the present moment, then in 5 minutes before the release, place two pending orders (BUY STOP – 20 pips above the current price and SELL STOP – 20 pips below the current price).
Place your Take Profit orders 40 pips above and below the current price. You can place your Stop Loss at the current price 5 minutes before the release or choose not to place it at all. In case of a favorable outcome, you can close the deal with profit.
If the outcome is negative, the prices will move in one of the directions, open the first order, but fail to reach your take profit. Then, prices will move in the opposite direction, open another order, but won’t reach the take profit level as well. If you have a stop, your losses will be limited.
The currency market is particularly prone to short-term movements brought on by the release of economic news from both the U.S. and the rest of the world. If you want to trade news successfully in the forex market, there are several important considerations: knowing when reports are expected, understanding which releases are most important given current economic conditions and, of course, knowing how to trade based on this market-moving data.
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