Tag: Trading news

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Forex Course

189. Summary – Trading The News

What did we learn till now? 

What did we learn till now? 

What did we learn till now? 

Sometimes in the forex market, the movement of prices seems random. In the previous series of courses, we have shown that most of the randomness you observe can be explained. By now, you should be capable of identifying the various news releases published daily. You should also be able to determine which currency pairs the news release is likely to impact.

In this final course, we’ll recap all that we have learned so far.

When it comes to news trading, a forex trader can either have a directional bias to trading or have a non-directional bias. For directionally biased traders, they have to:

  • Familiarise themselves with the economic calendar to know when economic indicators are scheduled for release
  • Understand the impact that each indicator might have and which currency pairs are best to trade
  • Understand that the analysts’ consensus or expectations are what determines if the news release is negative, positive, or in-line
  • Know which news releases to avoid trading

On the other hand, forex traders who have a non-directional bias do not necessarily need to familiarise themselves with these conditions. Such traders only need to know two things.

  • The scheduled release of economic indicators, speeches by influential people, and significant geopolitical events
  • Whether the upcoming event is of a high or low impact

Traders with a non-directional bias only concern themselves with the magnitude of the price movement after an event – not the direction. That is why they adopt the straddle strategy.

The straddle strategy uses forex stop orders, which triggers long or short positions if the market significantly moves in either direction. The buy stop order will trigger a long trade if the news release results in a bullish market. With the sell stop order, s short sell will be executed if the news release results in a bear market.

Remember to be careful when trading the news. Always keep an eye on the prevailing macroeconomic trends and geopolitical events. The overall market sentiment can sometimes amplify or dampen the impact of a news release.

If, for example, moments before the release of UK manufacturing data, the market receives news that the ongoing Brexit negotiations have hit a snag. If the manufacturing data is positive, its impact on the market will be dampened; if the release is negative, its impact will be magnified. All the best.

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Forex Course

188. Straddle Trading Strategy – An Efficient Way To Trade The News

Introduction 

Introduction 

Introduction 

In the previous lesson, we covered how you can make money if you knew the direction the market was going to move. In this lesson, we will show you how you can make money if you have no idea about the direction the market is going to move.

When there is high volatility in the market, especially as a result of a news release, it is possible to achieve this. Note that this strategy is different from trading with a directional bias.

Let’s break it down!

Firstly, you have to aware of an upcoming high-impact news release. Unlike trading with a directional bias, you don’t have to familiarise yourself with the direction the news will move the market. All you have to know is that the market will significantly move.

Let’s say, for example, that a news release is scheduled for 8.30 AM. Using the 5-minute timeframe, observe the trend for the past 30 minutes and establish the support and resistance levels. You will use these levels to set a buy stop and sell stop order.

With the buy stop orders, if the price breaks above the resistance level, a long order will be triggered. In the sell stop order, if the price breaks below the support level, a sell order will be triggered. Let’s use the news release of the US unemployment rate on October 2, 2020, at 8.30 AM EST.

Here’s the logic behind the straddle strategy. If the news is significant enough to break through the support level, then it is plausible for the bullish trend to continue in the short term. Conversely, if the news release is significant enough to blow the price past the support level, then the bearish trend might progress in the short-term.

Note that you can pre-set your ‘take profit’ and ‘stop-loss’ levels when using the forex pending order types. Doing this ensures that you get to determine your absolute downside in case a trend doesn’t hold. Furthermore, you can opt for only the ‘trailing stop order’ alongside the stop orders. Your ‘stop-loss’ value is not fixed with the trailing stop, which increases your exposure to the upside.

For instance, if, in the above example, we had set our take profit level at ten pips, we would have only made the ten pips. But, if we used the trailing stop order instead, we would have gained more than the ten pips. Cheers!

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Forex Course

186. What Are Directional & Non-Directional Bias While Trading The News?

Introduction

Introduction

Introduction

By now, you have a clear idea of how to make a news trading plan and schedule. The next thing you need to understand is that there are two primary ways of trading the news in the forex market. These ways involve whether or not you have a directional bias towards the news being released.

Having a Directional Bias

Among the first lessons you learn about the release of economic indicators is how they impact different currency pairs. For example, let’s say that you are interested in the GBP/USD pair, and there is an upcoming news release of the UK GDP.

We would expect that if the GDP shows that the UK economy has expanded, then then the GBP will appreciate relative to the dollar the pair will rise. Conversely, if the GDP shows that the UK economy contracted, you will expect the GBP to depreciate against the USD, and the pair will fall. This is what having a directional bias means.

We’re sure you have noticed the ‘consensus’ aspect from the economic calendar. This number is usually what the majority of financial analysts and economists agree on, as the forecast for a particular economic indicator. It is commonly referred to as “Analysts’ expectations.” In most cases, the market reaction to a news release is determined by whether the news was better than the analysts’ expectations, worse than the expectations, or in line with the expectations.

Let’s say that the analysts’ expectation for the upcoming UK GDP is a growth of 2% and when the actual GDP data released turns out to be 2.3%. If you have a directional bias, you will buy the GBP/USD pair as you expect the GBP to appreciate against the USD.

In another scenario, assume that the news release did not meet the analysts’ expectations and the actual GDP growth is 1.6%. For a forex trader with directional bias, they would sell the GBP/USD pair since they expect the GBP to depreciate relative to the USD. The analysts’ expectation is vital to a trader with a directional bias.

Non-Directional Bias

A news trader with non-directional bias ignores the analysts’ expectations. Such traders are aware that high-impact news will result in a significant movement in price action. For them, it doesn’t matter the direction of the market movement; they only follow the trend. They don’t bother whether the news release beat expectations or not.

We hope you got an understanding of what Directional and Non-Directional bias are while trading the news. Don’t forget to take the below quiz. Cheers!

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Forex Course

185. Knowing Which News Release To Trade Is Crucial!

Introduction

Introduction

Introduction

Before you develop your trading strategy around the news releases, you first need to decide which news you will use for trading. As we mentioned in our previous course, different economic releases have a varying impact on the forex market. Since the aim of any trade is to gain as many pips as possible, it is only natural that you trade news releases that create high impact – those which can significantly move the forex market in the short-term; or even the longer-term.

The primary way to identify high-impact news releases is by establishing which economic indicator gives a relevant, most current, and comprehensive overview of the economy. The high-impact news releases usually cover these aspects;

Central banks’ monetary policies: These policies can impact future economic growth – both in the short and long term.

Labour market reports: Such reports tend to be of the changes in the previous month. They are a leading indicator of changes in household demand, which is a major contributor to economic growth.

Manufacturing and industrial activities: These sectors are usually among the largest employers in the labor market. Monitoring their growth can be a leading indicator of GDP growth and changes in the unemployment levels.

The services industry: This industry is the first to be impacted by changes in consumer demand.

You don’t have to stress about determining which specific economic indicators are high-impact. The economic calendars take care of this for you. Furthermore, there are several economic calendars out there, so you can compare multiple calendars and check put the consensus about the impact magnitude of the various news releases.

Note that these calendars have a legend to indicate the magnitude of the news release. They show whether the news will have high, medium, or low volatility.

Here’s our recommended list of high-impact economic indicators.

  • GDP releases
  • Inflation indicators like CPI, PPI, and PCE
  • Interest rate decision
  • Unemployment rate and wages data
  • Industrial production, factory orders, or manufacturing production
  • Retail sales
  • Surveys on the manufacturing sector and services industry
  • Sentiment surveys on consumers and businesses

It is important to note that geopolitical developments can be happenstance. These events could include upcoming elections in major economies, natural disasters like tsunamis, pandemics, and geopolitical conflicts. When these events happen, the impact of the release of the economic indicators may change.

For example, towards the end of Q2 in 2020, the impact of these economic indicators was heightened. The reason is that they signaled the rate of economic recoveries after the coronavirus-induced recessions. Furthermore, they showed whether or not the expansionary policies adopted impacted the economy as expected.

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Forex Course

184. Why Is It Important To Be Careful While Trading the News?

Introduction

Introduction

Introduction

Now that you know about scheduled news releases in the forex market, you must be excited. You probably think that you have the most foolproof way of trading in the forex market. You might have even gone to the extent of planning your trades to coincide with the high-impact indicators; because they significantly affect price action, you can collect a lot of pips.

Well, if you have thought and planned all that, forget it! To successfully trade the news in the forex market, you have to be deliberately methodical and calculative. If not, you may end up wiping out your trading account.

We’re not saying that you shouldn’t trade the news. Quite the opposite, you should, but only, and only when you understand the implications of the news release. Let’s, for example, take the release of a high-impact economic indicator.

Usually, when high-impact economic indicators are released, they are followed by extreme market volatility. The US unemployment rate is a high-impact indicator. Its latest release on October 2, 2020, at 8.30 AM EST came in positive at 7.9% lower than the expected 8.2%.

In this case, you’d expect the USD to be stronger than the EUR. But immediately after the news was released, there was some volatility that made the pair gain 11 pips before adopting a bearish trend.

Eleven pips may not sound like a lot. But if you have a small trading account and using high leverage, the chances are that 11 pips in the wrong direction can wipe you out.

Watch out for geopolitics

When trading the news as scheduled in the economic calendar, it pays to monitor geopolitical developments that are not scheduled, especially in the current climate of trade wars. Declarations by influential political figures may influence trends in the forex market. In such cases, if the news release of economic indicators coincides with such events, their impact may be watered down or exacerbated.

Another reason why trading the news may not go as planned is because the outcome of a news release could already be priced into the market. Forex traders are skillful at anticipating – especially when it comes to interest rate releases. If they anticipate that central banks are going to cut interest rates, they will adjust their trades weeks or months in advance. In this case, when the actual rates are released, their impact will not be as pronounced.

Bottom Line

We’re not saying you shouldn’t trade the news. Just take your time and familiarize yourself with the different types of economic indicators. Do thorough backtesting and have a trading plan on how you will incorporate news releases into your trading.

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Forex Course

183. Introduction To Trading The ‘News’

Introduction

Introduction

Introduction

The forex market, or any other financial market, is always driven by sentiment. And by sentiment, we mean; investors will only pay what they believe an asset is worth. More so, their investment decisions are primarily ‘future-looking,’ meaning that the types of trades they make will reflect their expectations about the value of the asset they trade.

So, what drives the price of currency pairs in the forex market?

The simplest answer is the fundamentals of a country. Let’s revisit the forex basics here for a bit. The price of a currency pair is the exchange rate between two currencies. This price doesn’t just move up and down arbitrarily. It is determined by the economic value of either country – what is called fundamentals. You might be tempted to think that technical indicators drive price action in forex. Quite the opposite – almost all the time, the technical indicator follows the news.

So, when one country’s fundamentals improve or are believed to improve, the value of its currency will increase relative to other currencies. Similarly, when the country’s fundamentals deteriorate or are expected to worsen, the currency will depreciate.

Remember the laws of demand and supply. When the demand is high, prices tend to go up, and when demand falls, prices fall along with it. The same applies to the forex market. When fundamentals improve or are expected to improve, the currency is in high demand making its value increase. When fundamentals worsen or are expected to, traders dump the currency as its value drops.

So, how do forex traders know if the fundamentals of the country have improved or worsened? News! News, as always, is the carrier of everything.

Where to find News in the Forex Market?

In the forex market, news can be delivered in various ways. There are hundreds, if not thousands, of organizations and government agencies that publish various economic indicators. But don’t worry, you won’t have to go through thousands of webpages just to find relevant news regarding the currency pairs you are trading. Things are a bit neat in the forex market when it comes to news releases. The economic calendar simplifies things for you. Here, you will find virtually every scheduled publication of economic indicators from every country! This way, you get to know what’s happening and when it is happening.

Here’s a screengrab of an economic calendar.

Furthermore, these scheduled releases have been categorized depending on the magnitude of their impact. Of course, not all economic indicators impact a currency the same way. Some have negligible effects.

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Forex Course

157. What Expectations Do Forex Market Have On The Financial News?

Introduction

Introduction

Introduction

Economic releases and news are essential for traders who make trading decisions based on fundamental analysis. Economic news is publicly available as soon as it releases. Therefore, traders can access it from any internet connection enabled device. As economic releases directly affect the currency market, traders must understand how to use it.

Types of Economic News

There are three types of economic news for the currency market- low impact, medium impact, and high impact. Among these types, the high impact news is essential as it immediately impacts a currency pair. Some example of high impact economic news is-

  • Interest rate decision
  • Inflation report
  • Retail Sales
  • PMI
  • GDP
  • Export and Import
  • Foreign Currency Reserve

Besides, the high impact news, medium, and low impact news often create a good movement in the market, which is not very frequent. Therefore, we should stick to high and medium impact news only.

How Economic News Affect the Currency Pair?

There are three significant elements of the economic news that a trader should consider while doing analysis. They are:

  • Previous Release- Previous data is the most recent release used to compare with the current data.
  • Expectation- Before releasing every news, analysts project the data. If the news comes better than expected, it will be shown in green and indicate a positive effect on the currency.
  • Current Release- It is the most important part as trading decisions depend on it. The current release is the data that usually release on a particular day.

Let’s have a look at how to read the news:

  • The current release is better than the Previous release- Good for the currency
  • The current release is better than the expectation- good for the currency
  • The current release is worse than the previous release- bad for the currency
  • The current release is worse than the expectation- bad for the currency.

Image Source: www.forexfactory.com

In the above image’s marked area, we can see that the US monthly retail sales came at 1.2%, where the previous data was 8.4%, and the expectation was 2%. As the news massively declined from 8.4% to 1.2%, the US Dollar became weaker than the Euro as indicated in the image below:

Conclusion

As of the above discussion, we can say that better than expected and previous data may positively impact the currency, and weaker than expected data will negatively impact a currency. However, we should consider the overall fundamental outlook of a country to take the ultimate trading decision.

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Forex Videos

Trading Volatility In Forex – How To Make Over 100 Pips In A Single Trade #Newstrader

https://youtu.be/UgDRKYue2_k
Trading Volatility
The forex market will typically ebb and flow in line with technical analysis, especially during the times of economic releases, or in the run-up to potential

https://youtu.be/UgDRKYue2_k
Trading Volatility
The forex market will typically ebb and flow in line with technical analysis, especially during the times of economic releases, or in the run-up to potential

Trading Volatility

The forex market will typically ebb and flow in line with technical analysis, especially during the times of economic releases, or in the run-up to potential market-moving commentary from governing policymakers.

Depending on the nature of economic data releases, which are usually tiered between, low, medium and high risk, and where the latter would include gross domestic product or GDP, interest rate decisions, and employment statistics, the market can often be subdued just before high-risk announcements, and then extremely volatile afterwards.

During periods of extreme volatility, currency pairs can often spike 50 to 100 pips in a matter of minutes. This will occur because big institutions pull their bids and offers, and large orders begin to fill the vacuum, and where many of the big players and retail traders will be stopped out of their trades. Markets need time to analyze data and trade accordingly. This can be problematic for retail traders who are not properly equipped with professional analysts to help filter out components of the news, which might push a pair in either direction or to decipher if the data is already in the price.
As prices blip and spreads tend to widen during high-risk announcements, it becomes extremely difficult to gauge entry and exit points. In fact, it is almost impossible for the human mind to be able to know how to make informed trading decisions while under so much pressure during times of extreme volatility.
So how do traders trade high volatility events?

Example A


Well, in example ‘A,’ which is a 1-hour chart of the USDCAD pair, and where we have been following the pair from its low of 1.3187 to a recent high of 1.3314. There is a high-risk event later today in the form of Bank of Canada data releases, including consumer price index – year on year – and which will typically involve a great deal of volatility in price action upon its release. We have determined that the pair is overbought, and gone short at 1.3309 and where the pair came into profit almost immediately. We have also protected the trade by bringing our closeout order in front of our entry price at 1.3306 and which essentially gives us a free trade. We cannot lose on this one.

We have set our take profit at 1.3209, which is close to the bottom of the previous low and which would give us a profit of over 100 pips should it be executed. However, in the run-up to the data release, we now have the flexibility of managing this position by bringing our protective close out lower as we get closer to the data event, in case the figure is below market expectations and the Canadian dollar loses ground with the pair moving higher.
If the numbers are strong, we are in a position to follow – what should be a strengthening of the Canadian dollar, and hence the pair is moving lower and then drag our protective close out lower and bag as many pips as we can.

Example B


Example B is a calendar event highlighting the data release which will occur subsequent to our trade set up. And or trade platform is the Metatrader MT4.

Another way traders will set up a trade is via the use of limit orders. These orders can be placed above or below the market price and where they will automatically buy or sell a pair at a predetermined level, close to, or after data release events. These can be a great way of gaining access to high-risk events but should always be used with carefully thought out stop losses. Some traders will even place limit orders to both buy and sell a pair after a high-risk event on the basis that at least one trade will be executed. Again, this is an extremely risky strategy as it is possible to have both trades executed consecutively, and both trades stopped out as the market whipsaws post the event.

Here at Forex.Academy we recommend next new traders study their economic calendar closely and do not trade a couple of hours before, or after, big data release events. Try to observe other regular times of extra volatility, such as the opening of new time zones and during times of thin volume such as public holidays.