Trading with news strategy

We have discussed many   that allow us to analyze price activity from a variety of perspectives. These trading strategies give us the technique, however, there is a factor that is always able to make all the techniques irrelevant and shake the market in any way. Big celebrities in different countries can have a huge impact on the market, effectively rendering all our analysis meaningless.

The forex market is a 24 hour market and news can come from anywhere in the world at any time. Based on economic news and data, market changes can hit any trader, wherever they are and which currency they choose. If you are in Asia and want to trade with YEN, there is news from Japan almost every day. If you like AUD or NZD, you should watch the news from Australia, New Zealand and China. The same goes for EUR, GBP and USD; you should check the news in the morning and afternoon if you live somewhere near European time zones.

In stocks, the latest news is about the company’s earnings, earnings, earnings per share, industry, macroeconomic data, and more. It can be announced. In the forex trading, important news influencing the markets can also be the minutes of the central bank and the members’ press conferences and inflation reports. as national and international economic news and data.

One of the first lessons for new traders is to keep the market away from the bigger communications when trading. Nevertheless, we often find ourselves trading under the news, and most of the time not because of greed. Some like adrenaline, some are addicted, but most traders just like profits. After all, we are in this business to make money, and the risk of doing so is a necessary consideration.

Currency trading always involves two currencies. When planning to open a trader position, the expected news of both countries as well as any other international news that could potentially affect the pair should be taken into account.

For example, if you choose to trade AUD / JPY, apart from evaluating the possible outcome of news from Japan and Australia and its impact on the pair, you should consider important upcoming news from Europe, the US, or elsewhere because this news could shock financial markets. If really good economic data were released from China, the pair would team up because that means demand for Australian products is likely to increase. We could expect the opposite if there was really bad news coming from Europe; it would shock the global financial market and traders would run for safe skies like YEN and CHF.

Learn more about currency trading: Fair Value – An effective way to trade currencies

Below are key economic data and news and their impact on the country’s currency when the numbers exceed expectations:

  • GDP -> (+) Good
  • Unemployment rate -> (+) Bad
  • Inflation (consumer and producer prices) -> (+) Good
  • Interest rates -> (+) Good
  • Trade balance -> (+) Good
  • Retail sales -> (+) Good
  • Services and production PMI -> (+) Good
  • Consumer and business opinion -> (+) Good
  • Unemployment Claims -> (+) Bad
  • Home sales -> (+) Good

Now that we understand the importance of understanding the news and its impact on the price, we need to learn how to use the news to our advantage. There are two ways to trade a news strategy – long-term and short-term.

Long term news trading

When looking for long-term trading opportunities based on economic news, it is important to analyze both past and current data. This is because sometimes the news takes weeks, months to be received by the market. Using the data, we can see the bigger picture and its impact on the currency. Long-term trends are created by fundamental factors that make up many economic elements over a period of time.

Looking at the GBP / USD chart below, we can see that an uptrend started a year ago and has been a one-way street ever since. Similarly, the EUR / GBP shows a declining trend over the same period. But these trends did not start from the blue. Economic data that has come out of Britain for the past two years or even longer has made this possible. Most of the news, long before the trend began to emerge, marks the imminent recovery of the British economy. If a trader reads and analyzes the data correctly, he would have bought the pound last summer and pocketed about 2,000 pips.

The GBP / USD weekly chart shows a one-year uptrend that could have been predicted by analyzing news from the UK.
The EUR / GBP weekly chart similarly shows a declining trend that could have been predicted by understanding and analyzing news from the UK.

Sometimes long-term trends are created by a single celebrity event, especially when the market is sensitive to that event at that moment. This was the case when the ECB announced that it would broaden monetary policy, reduce Refi rates and introduce negative deposit rates. This meant that more euros would flood the market, and we know that if something exceeds that, it will become cheaper.

The market has been waiting for the event for a long time. The figure below shows that the euro fell by about 160 seeds that day, for a total of about 500 seeds. Since then, it has developed a declining trend, breaking down from level to level without technically being able to stop it.

Only a big celebrity event can affect the market in this way, the price breaks all the levels of support that stand in the way.

Short term news trading

Daytime trading of news is a bit more difficult due to volatility and tighter stops. Usually 1-2 minutes before and after whipsaws, the price moves frantically in both directions. Short-term news marketing is divided into several strategies:

Selling bad news headlines – One way is to sell the headline after worse-than-expected news, or vice versa. Sometimes, even after very bad data, the price jumps for a few seconds or minutes. This is the best time to sell, especially if you are on some high level or in resistance. After Fed President Yellen failed to hit Tapper on June 18, which is dollar negative, the USD / CAD jumped 30 pips to 1.09 to reverse a 150-pip drop.

The momentary peak follows news that should trigger a declining trend, signaling the best time to be short.

Buying after bad news results in a couple of uptrends due to previous good data. Although not uncommon, worse-than-expected news cannot be ruled out, although they do not affect the overall outlook for the situation. So after an initial fall, we need to look at the knee jerk response.

This happened with the USD / CHF on June 25, when US GDP was much worse than expected. The pair has been on an upward trend for about two months now, with very good data, so a piece of news fails to upset that. The pair immediately dropped about 30 seeds and then bounced back immediately.

The bad news doesn’t always lead to a long downturn, the fall can be momentary and then the price starts to push back to the previous level.

Trading Outbreaks – Before important news, the price is often in a tight range and you are not sure which direction you should go. This scenario is best traded with pending orders from both parties – sell a break at the bottom and buy at the top. We recommend that you place your orders significantly further away from the range to avoid whipsaws. The chart below shows a good opportunity for the USD / CAD on June 23, when retail sales and the CPI inflation were much better than expected.

The price gets stuck in a range before the big news announcement and then suddenly jumps in one direction after the announcement of the news.

Forecasting News – Forecasting news and reading price readings is not easy, but like everything else, it becomes easier with experience. It can also be a potentially very profitable strategy.

On May 1, at 8:30 a.m. (GMT), the release of the manufacturing PMI was expected. The market consensus was for lower readings, but with good data recently, it was likely that the numbers would exceed expectations. Looking at the GBP / USD 15-minute candle just before its release, it jumped about 25 seeds, suggesting that the data exceeded expectations, and it did. So I bought during the jump and closed the profit. Then came the news, and the rest was history.

The first candle jumped 25 seeds, indicating that the news would be better than expected.

The same thing happened with GDP figures on April 16th. The 3-hour candle before the release was really bullish, suggesting better-than-expected data. So I bought it in the middle of the second candle and closed some profit before the announcement. After the news, he jumped another 60 seeds.

Each candle is more bullish than the previous one, a great opportunity for easy profit.

News trading is actually not just a forex trading strategy you can add to your arsenal, but another way to trade forex. To fully master forex trading, this must, of course, be combined with other forex trading strategies that rely not on fundamentals but on technique, and must trade based on all such data.