Forex News Trading
Economic news releases often evoke strong moves in the currency market, creating a lot of short-term Forex trading opportunities for breakout traders.
However, not all economic reports are tradable. Some of them have a significant effect on the market while others do not have any effect. By looking at the economic calendar traders can find out the significance of the upcoming reports, find out whether the economic report is worth trading or not.
The Forex news reports are marked in terms of significance. There are three levels of significance: RED, ORANGE , GREEN. The most significant news reports are marked in red; the least significant are marked in green, while those marked in orange are in between.
There are two general approaches to trade news:
Trading the breakout channel
Forex Traders simply set Buy and Sell limit orders on both sides of a price channel, so when the data comes out one of the orders will probably be hit. Although this method is very simple, it also carries real risks of potentially hitting two orders: Buy and Sell as the market is shaken by the economic report. In such a double-hit situation traders will face losses on one or sometimes even both trades.
By analyzing the news report
Forex Traders can predict most probable outcome of the news by looking at the economic calendar fields labeled as Forecast and Previous. These figures are then compared with the economic data released to give an idea about the current economic situation.
Forex Traders watch the news report and pay attention to the actual numbers released. If the numbers come as a surprise meaning the reports are not close to what was expected or forecasted, then fundamental analysts opening trading position according to the economic reports. If the report is better than expected then fundamental traders open Long positions. If the reports are not favorable traders open Short positions.
The most important thing you have to know about fundamental analysis is the market expectation of an indicator. Economic analysts provide a prediction of a probable number of the indicator to be announced. This has an impact to the market and traders are positioned accordingly. When the indicator is announced it affects the market only when the report is different from what the market expected. That happens because every available to the public information is already taken into account.
Example of Forex Trading News
The best news trading strategy, is one that is based on the economic calendar to time when the news release are to happen so as to trade these data reports. A trader will keep a schedule of these times and prepare how to trade the data before and after the data is released.
A trader can get the times of when economic data are to be released by observing an calendar. The calendar contains the time-table of when data are bound to be released. The calendar is compiled by Financial Analysts and Economist who study the fundamental reports and economies of the world. This Calendar will show the timetable for all the news releases scheduled for the next 30 days.
By Having this calendar a Trader can schedule when to trade these economic data well in advance. To obtain a copy of this calendar a trader can search for "Forex Calendar" and you will find a couple of these calendars online hosted on various Forex sites.
An Economic Calendar will normally have three readings:
- Previous Reading
- Actual News
Previous Reading - This piece of the data shows the previous value or reading of a previous news reports. Most fundamental reports are in the form of numeric numbers or percentages.
Forecast - Forecast shows the value for the news that economic experts predict for that particular report. This value is forecasted way before the date of the economic release. Economic and Financial Analysts will put across their forecast.
- If the forecast number is better than previous, Traders will buy the currency associated with the good forecast
- If the forecast number is worse than previous, Traders will sell the currency associated with the bad forecast
Actual News Release
This is what will determine if there will be a large price movement or none at all.
If the actual data release is same to the forecast, then there will not be much movement, this is because Forex traders anticipated these data and have already traded the news even before the actual data was released.
If the actual news release is not the same as the forecast, this will come as a surprise to the traders, if the forecast and actual data release is not the same then, the traders will have to adjust their trades accordingly and this will cause a price reversal in the opposite direction.
If like wise the actual data reading was way better than expected, then price will continue towards its direction and gain further momentum towards that direction. Likewise if the actual news report is worse that predicted price movement will also continue in the same direction as that of before the news release and this time gain more momentum and move further towards that direction.
When the new information is announced then it has impact on the market only if it is different than expected. If the information is as expected then it has no impact on a currency because the information is already available to the public and has already been taken into account.
In order to use the forex fundamental analysis, you should first be able to know market indicators. Economic calendar containing all the fundamental indicators is created by economists. Economists also use this Economic calendar to predict different news reports. These predictions are provided by market analysts. This can have great impacts on the market. Forex Traders will watch out for news announcements that have a great impact on the financial markets.
When are economic news released?
Economic Reports Announcement Times of the major economies and major currency pairs traded in the foreign exchange market.