It's critical for forex traders to pay attention to big economic data releases, government statements, and geopolitical events. Why? Because this information generally represents a country's economic strength and can predict a currency's future direction. Trading the news might be tough and not fit for everyone, but the resulting volatility can provide a plethora of trading chances. You know what they say: with the big volatility, comes the big responsibility (or something like that, right? #InvestroyJoke), so beware of wide spreads and slippages.
We must first determine whether news items are even worth trading before building a "Trade the News" method. "Which news releases should I trade?" is a question you want to be able to answer. The big event risks that have a significant influence on the major currencies should be familiarized by forex traders. Remember, we're trading the news because it has the potential to raise volatility in the near term, thus we'd want to trade just the news that has the most market-moving potential for the currency market. The news that tends to influence market action and create volatility generally consists of the following:
Modifications in central bank policy (sometimes known as "monetary policy").
Changes in government policy (sometimes known as "fiscal policy").
Economic data releases have had unexpected results.
Random tweets from a particular international leader who enjoys emblazoning his name on skyscrapers (not anymore), or a billionaire working on spacexploration.
Pretty much everything marked red in the economic calendar (especially related to US).
There is no single news trading approach. As traders assess the conclusion versus market expectations, the price tends to surge in one way or have a subdued reaction to the news. With this knowledge, there are two basic ways to exchange news:
a) Having a bias in one way
b) Having an asymmetrical bias
When you have a directional bias, you expect the market to move in one way when the news is disclosed. When looking for a trading opportunity in a certain direction, it's helpful to understand what aspects of news stories lead the market to move.
The non-directional bias technique is a more popular news trading strategy. This strategy ignores any directional bias and merely relies on the fact that a major news event will cause a significant movement. It makes no difference either way the FX market swings. We simply want to be present when it happens! When you have a directional bias, you expect the price to go in a specific way, and you've already placed your orders. When news is released, it is always beneficial to grasp the underlying reasons why the market swings in a particular manner. You don't care which way pricing goes when you have a non-directional bias. All you want to do is get activated. Straddle trades are a type of non-directional bias setup.
Conclusion: In addition to the factors mentioned above, you should be willing to learn along the way by figuring out: which news are stronger than others, what is the difference that needs to be between forecast vs actual for volatility to skyrocket and which news you should never even try trading. All these things come from trading and trading only (moreover, bad news, market changes every year).
Personal note: The way we do it most of the time is… we trade them way before release, as this is how market picks up the direction.
We must first determine whether news items are even worth trading before building a "Trade the News" method. "Which news releases should I trade?" is a question you want to be able to answer. The big event risks that have a significant influence on the major currencies should be familiarized by forex traders. Remember, we're trading the news because it has the potential to raise volatility in the near term, thus we'd want to trade just the news that has the most market-moving potential for the currency market. The news that tends to influence market action and create volatility generally consists of the following:
Modifications in central bank policy (sometimes known as "monetary policy").
Changes in government policy (sometimes known as "fiscal policy").
Economic data releases have had unexpected results.
Random tweets from a particular international leader who enjoys emblazoning his name on skyscrapers (not anymore), or a billionaire working on spacexploration.
Pretty much everything marked red in the economic calendar (especially related to US).
There is no single news trading approach. As traders assess the conclusion versus market expectations, the price tends to surge in one way or have a subdued reaction to the news. With this knowledge, there are two basic ways to exchange news:
a) Having a bias in one way
b) Having an asymmetrical bias
When you have a directional bias, you expect the market to move in one way when the news is disclosed. When looking for a trading opportunity in a certain direction, it's helpful to understand what aspects of news stories lead the market to move.
The non-directional bias technique is a more popular news trading strategy. This strategy ignores any directional bias and merely relies on the fact that a major news event will cause a significant movement. It makes no difference either way the FX market swings. We simply want to be present when it happens! When you have a directional bias, you expect the price to go in a specific way, and you've already placed your orders. When news is released, it is always beneficial to grasp the underlying reasons why the market swings in a particular manner. You don't care which way pricing goes when you have a non-directional bias. All you want to do is get activated. Straddle trades are a type of non-directional bias setup.
Conclusion: In addition to the factors mentioned above, you should be willing to learn along the way by figuring out: which news are stronger than others, what is the difference that needs to be between forecast vs actual for volatility to skyrocket and which news you should never even try trading. All these things come from trading and trading only (moreover, bad news, market changes every year).
Personal note: The way we do it most of the time is… we trade them way before release, as this is how market picks up the direction.