News trading is one of the most effective forex strategies based on the principles of fundamental analysis. As part of its application, the trader is working on the study of global economic markets in order to find news that can cause significant price fluctuations in currency trading. And if properly applied – the ability to trade on the news can bring a trader up to 50 – 100% profit every month. The main thing is to be able to understand the very principles of its work in practice.
Forex: how to trade on the news?
What is the basis for Forex news trading? The correct prioritisation and strategy. The most common strategy is the strategy of placing pending orders just before the news release. What’s her point?
1) The first pending orders are placed in advance, 5 minutes before the news release. These will be BuyStop and SellStop, set at 25 points from the current price. It makes no sense to place orders closer, because as soon as the news comes out, price fluctuations may occur, which may cause excessively early triggering of the signals.
2) The StopLoss level of such deals is set at the moment of opening the main position at the minimum level – not more than three to five points, and TakeProfit is placed at a level from +10 to +40 and more points, depending on the nature of the news and the predicted market reaction. Both of these orders need to be supplemented with trailing stops that allow you to shift the stop-loss/take profit levels depending on the price movement by a certain number of points (pips). Simply put, this way the transaction is insured against significant losses in case of market reversal and the beginning of reverse price movement. In the absence of trailing stop experience, it is better to set the trailing stop at the level from 1 point.
3) Let’s say you’re waiting for a news release at 12-05 PM. Accordingly, at 12-00 PM pending orders should already be placed within 30 points of the current price values. And as the “moment X” approaches, this distance will have to be reduced to a value of 10 – 15 points (these values should be reached 15-30 seconds before the news release).
4) Choosing timeframes for news trading, it is necessary to focus on the range of 5 – 30 minutes, taking into account such an indicator as the display of two major orders on the chart.
5) When placing orders, the trader has to wait for the news to be released. Usually at this moment (if there is no delay due to the fault of the broker or news provider) the price shows the most powerful breakthrough – on the chart it will be displayed by the appearance of a high candle. And if you choose the right Take Profit and Stop Loss levels, the profit on reaching the selected price threshold will be automatically fixed.
Trading on the news: features
In some cases, trading on the news is accompanied by force majeure. The power of price jerk may not meet expectations, the broker may not work as quickly as you expected – situations can be different. And it is very important at this point not to be confused and act on the situation in the “manual” mode.
1) If the price growth impulse was weaker than expected and did not reach the take-profit level at the moment of intensive price breakthroughs, we can proceed as follows
- Take the stop-loss to zero and wait for the market to reach the required level of inertia;
- Take the stop-loss to zero and close the order;
- remove the Take Profit level, set the Stop Loss at a distance of 5 points from the trailing stop price and watch the price rise, wait until the deal closes automatically, when the market reverses.
2) The broker’s sluggishness or bad faith can lead to a paradoxical situation: the price overcomes all the placed orders, forming a gap, and the trade is not opened, and the placed pending order remains green or yellow. In this case, there can only be one advice: withdraw orders, change the broker.
3) A slippery order opened above Take Profit level must be closed immediately. Otherwise, when the price rolls back for the first time, it will close with a loss at the level at which you initially set the Take Profit.
4) Temporary suspension of the price in the terminal – a chance for the trader working with several brokers and terminals at once. In this case, you should be guided by the working terminal and the direction of price movement on it, setting up an order to buy/sell on the market on the hanging terminal and at the same time limiting take-profit at the level of change in the price indices. After the terminal has overcome the problems in work, such a deal will be closed instantly and with a guaranteed profit.
5) Absence of serious market fluctuations after the news release requires one thing – removal of orders in the shortest possible time.
News to which we can expect a significant market reaction
The economic news that can influence the Forex market can be divided as follows:
- Changes by pair USD/…, …/USD
- Non Farm Playrolls – employment rates of the population, except for employees of the agricultural sector of the economy.
- Changes by GBP/…, …/GBP pairs
- Release of data on changes in PMI indices (for manufacturing, services).
- Announcement of rates by the National Bank of England
- Release of the minutes of the meeting of the National Bank of Great Britain on credit and financial policy.
- Changes in AUD/…, …/AUD pairs
- Release of data on changes in consumer prices.
- Issue of data on the number of employed population.
- Receipt of information on the increase/decrease in retail trade volumes.
- Announcement of the decision of the Reserve Bank of the country to change the basic interest rate of the Central Bank.
- Changes in CAD/…, …/CAD pairs
- Publication of information on changes in employment.
- Changes by EUR/…, …/EUR
- Monthly press conference of the head of the European Central Bank.
- Publication of information on the basic level of interest rate established by ECB.
- Changes by NZD/…, …/NZD pairs
- Information on changes in employment data.
- Output of the decision of the State Reserve Bank on formation of the base interest rate level.
Trading on the news: process nuances
It is important to consider that each news item should be considered on the basis of three indicators:
1) values for the previous reporting period;
2) predicted values;
3) actual indicators at the moment of data publication/news release.
However, if the news is expected to be released in the U.S., it is worth choosing USD/JPY or GBP/USD for trading. If the news is very expected and important, you should choose USD/CHF or EUR/USD pairs.
To release news on the European Union or the UK, trade in pairs with the currency of the source country, paired with the U.S. currency.
To release news on Australia, Canada, New Zealand it is worth to be guided by pairs USD/CAD, NZD/USD, AUD/USD.
The Forex News Calendar is better monitored weekly, reviewing and marking the news that are of most interest for trading.