Trading Forex Based on Economic News
Trading forex using the news is common practice amongst both beginner and seasoned traders. News releases and world events all impact the value of forex trade on a minute-by-minute basis.
Foreign exchange trading is relatively simple once you understand what you are doing and looking for, and adding economic news knowledge to your repertoire will allow you to look ahead and make better predictions and trades.
Why Read Economic News
The first question you may have is why even read the economic news? You have your positions, they’re working for, and you’ve been paying enough attention to make a consistent profit. There is one huge benefit to spending a few minutes every day reading these news releases.
Forex is very easily and quickly shifted by small changes in economic policy, budget releases, import/export figures, inflation, investment, etc. Knowing if or when these shifts happen can give you a foot-up when deciding what to invest in. While none of this news is a secret, it can feel like a cheat code sometimes.
Currencies to Focus On
There are a handful of big currencies you should be focusing on when checking economic news. These are the US dollar, the Euro, the British pound, the yen, the Swiss franc, and the Canadian, Australian, and New Zealand dollar.
These are the strongest currencies around, and you most likely trade with them regularly now. When looking at economic news, events and releases that affect these currencies will be the most important.
News Release Times
If you want to begin trading the economic news, the first thing you need to do is figure out when the releases happen for each of the major currencies. These times will vary depending on where you are, but they should be in your diary on a daily basis.
Another question you may have is what releases are you even on the lookout for? Countries don’t have a daily “forex performance” report that they put out, but there are several other news-type releases that you should pay attention to.
Interest rate decisions, tax hikes or drops, inflation announcements, and consumer confidence surveys; are all examples of releases that often affect currencies and their strength.
How Long do the Effects Last?
You may also want to know how long the effects of these announcements and releases last on a currency. Multiple studies have shown that reactions could still be happening hours, if not days after the releases are made.
This means that markets and currencies can take up to three or four days to stabilize after an announcement, something that will make scalp and day trading very difficult.
How to Trade the News
Trading the news can be very tricky at times due to one of the enemies of trading, volatility. In simple terms, trading the news is looking for a period of consolidation or uncertainty ahead of a big release and then trading the breakout.
Volatility is a problem due to traders being able to make the right decision, but the market doesn’t have enough momentum to reach or sustain a move. The concept of trading the news is relatively easy; getting it right is the difficult part.
There have been multiple examples of job releases being expected to show 200,000 jobs created; for example, only for it come out at the number is only 40,000. This means correct positions were established, but the market didn’t play ball.
Should You Trade the News?
This factor of volatility and not always being 100% sure, is a downside to trading the news. There is also the aspect of markets not being entirely predictable, making these types of trades very difficult for beginners who have little to no experience.
However, if you are someone who can quickly pick up patterns, you stay on top of the news, and you are aware of the history of similar decisions and releases; there’s a very good chance you could do well with news trading.
To conclude, news trading can be difficult to get right at times, and with no guarantees, even making the right decisions could be to your detriment. If you are going to take your forex trading seriously, though, keeping up with these releases and events should be a daily habit.