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How to Trade News | Trading the News

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How to Trade News | Trading the News

Postby Isaiah » Thu Apr 26, 2012 9:13 am

How to trade the news? I understand that trading the news can be reacative or proactive but wish to discuss the best ways of news trading. The market moves in the direction of the the expectations even before the news release comes and then there may be some strong moves depending on the type of results. Can we please share the thought processes and strategies to make the best out of it? It would also be nice if the optimum time frames of the charts and such micro details can also be shared.
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Re: How to Trade News | Trading the News

Postby Haley12 » Thu Apr 26, 2012 10:39 am

We should not trade just news come out. We should wait till 2-10 minutes to check market move after that we should enter for trade in positive direction.
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Re: How to Trade News

Postby eur/usd trader » Fri Apr 27, 2012 5:01 am

I, personally, do not like news trading for Forex but wish to share my thoughts.

Before thinking about how to trade news, let’s see which news releases are important and which currency pairs we should focus on:

I would say that the major news events to be focused are employment reports (US nonfarm release sometimes shake the market), retail sales, GDP, confidence reports (consumer confidence and industry confidence etc), Home sales, Inflation, CPI and trade balance. You will also find that out of developed economies, generally economic releases from Japan and Switzerland do not cause heavy market moves.

As far as currency pairs are concerned I would mainly go for currency majors and focus on USD, EUR, GBP, CAD, AUD, NZD, CHF and JPY.

Now when it comes to proactive or reactive trading, I would say that both could be fine but in either case the trades should be very short-term with small profit targets and stop-losses. Before I say more about this, let’s see what could be the market behavior before and after a major news release for example US nonfarm payroll (NFP) report.

1) There would be general consensus whether the release is going to be positive or negative in comparison with the previous data. Based on this the market would be moving in the direction of the consensus. For example if we are talking about EUR/USD and US nonfarm payroll (NFP) and it is expected that the NFP data will be weak then the currency pair should be moving up on expected weakness of US Dollar.

2) Just before the major release the market may go sideways or even for some consolidation because of the fear of some unexpected data.

3) Immediately after the release if the data is weaker than expected then some strong move would take place in that direction. For EUR/USD example the pair should move very strongly upwards. If data is stronger than expected then a stronger move should take place on the opposite side i.e. the currency pair should move down strongly.

4) Now the strong move immediately after this news event would most probably not continue for a long time. After a heavy move, some consolidation in opposite side would take place. This presents one opportunity to make a short term trade in the opposite direction.

So to conclude, the trading opportunities can be as follows:

1) Sideways moves before the news event: Range trading by going long at the bottom of the range and going short at the top of the range.

2) Proactive: Entering the market after analyzing the possible direction. Many reports would be dependent on some earlier/ recent releases and that can give us some idea if the new release will be weaker or stronger. Just as an example US ISM manufacturing and Industrial production reports. So we enter the market a little before the release and come out a little after the release.

3) Reactive: Here there are two possibilities; one to take a position as soon as some strong data comes out, in the direction of the market move and come out as soon as we see the early signs of loss of momentum or wait till we see a loss of momentum and take a position in the opposite direction for the expected correction.

One other points to consider is that any single major news even may bring some heavy market move in the forex market but with so many news releases from all other countries/economic regions we cannot depend for a longer term moves based on that one news release. This is the reason for short-term positions as some other news from some other region may counter the effect of the previous release. This is one reason that I personally avoid forex news trading.
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Re: How to Trade News | Trading the News

Postby Haley12 » Fri Apr 27, 2012 9:44 am

Thanks eur/usd trader for your detailed and descriptive reply. It is really helpful for me and other traders.
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Re: How to Trade News | Trading the News

Postby Alchemist » Mon May 07, 2012 1:07 pm

I personally would never trade the news. The degree of risk is too high for me to even consider it. I think that in order to do it successfully you would need to learn the fundamentals in depth. Also, this type of trading is strictly for experienced traders.
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