News Trading: This is a Strategy You Can Apply
News trading is a technique of buying and selling shares, forex, or anything else based on the trading opportunities that exist during the news release. News that is often used includes Non Farm Payroll and Gross Domestic Products in the United States. Every news released can trigger price movements up to hundreds of pips in just a short time.
Error Understanding News Trading Strategies
The reality is that the release of economic data does not only have an immediate impact on financial markets. The impact of the release of a story means not only the moment after the release of the news.
Most forex traders who are beginners have the opinion that the news released will be immediately seen in price movements. This is what makes them often complain when prices do not directly move in the direction they predict. Then they even thought that the news trading strategy was very impossible to implement.
Even if a trader knows how to implement a strategy in news trading, then this technique will be very profitable.
Currency Pair and News Trading Time
You cannot use all currency pairs when using news trading techniques. In the forex market, traders usually choose the most liquid currency pair. Some currency pairs that you can choose are EUR / USD, USD / JPY, AUD / USD, GBP / USD, GBP / JPY, and others.
Among all of these currency pairs, pairs related to the USD have the greatest tendency to be affected. This is because news that has a significant impact is often released around the New York session, in that period the market was most crowded and volatile.
News Trading Strategies That Can Be Applied
1. Installing Traps on Two Sides of the Market (trapping news techniques)
Many of the traders who put 2 positions in the market before the release of an important news and the techniques they used were almost the same as hedging.How traders will open long and short positions pending in the same currency pair before the news release, but they are waiting for execution after the news comes out.
In this way they can get a loss on the other side, but are expected to get a bigger profit on the other side.
The variation that is often applied is when economic data is released, the trader will take profit from the first position. At the same time, the trader will leave the other positions loss and floating until the market returns to normal.
The next variation is to put a stop loss on both sides. So when stop loss on one side starts to be touched, then the other position wins and is left floating to get additional profit.
Many academic studies show that the release of economic data can extend to monthly and more than one day after the announcement. Some examples of data that have a large and long impact are Non Farm Payroll and Fed interest rate decisions.
Although the market will react spontaneously, the consequences of changes in interest rates will have a long-term impact on various economic sectors. Thus utilizing this data as a basis for a long-term news trading strategy is possible.
Traders who use techniques like this usually build positions little by little based on economic data released not too often. They will prepare revisions to important economic data relating to currency pairs that are traded from time to time. This they do to be able to determine the price movement of a currency pair will be inclined to bullish or bearish and open a position in accordance with the predictions made.
3. Short Term Trading
When you want to do a news trading strategy with short-term profits, the important thing to do is to have a clear picture of the news that can be traded.
In addition to the above, a trading system that contains criteria for conditions in which the entry and exit positions are installed needs to be arranged. No less important is that a trader must be disciplined when applying the method they have made.
Important to Develop a News Trading Strategy
The thing you need to pay attention to as a trader is an element of market uncertainty. No matter how the trading system you have prepared properly, the possibility of loss is definitely in a forex trading.
The above is the same as news trading, the market reaction to the release of true economic data cannot be accurately predicted. The possibility of data being released is in accordance with analyst expectations, but there are times when the results of the news release are very far from expectations.
Aside from being a trader it will be very difficult for you to estimate market movements on the release of a news. It could be that the market will move 200 pips, 50 pips, or it can be 100 pips. The direction of movement can continue the previous trend or it can also turn towards the other. Even the movement of the price of 50 pips can be immediately returned to 150 pips.
The market uncertainty that we explained above is due to the many speculators who play on the market and all parties have the intention to get profit in a short time. Things like this will trigger spreads and trading volume increases in just a short time.
With the above, it does not mean that news trading cannot be done or difficult.News trading is actually not much different from other techniques in the forex market. The important thing you need to remember as a trader is to understand that the trader they are doing is a probability game.
As a trader, you must understand that market movements cannot be predicted with certainty. Thus money management and risk control are important for you to apply. Stop loss does not need to be too tight and should combine moderate leverage and positioning size.
In order to successfully carry out a news trading strategy, you need to consider several important things to do.
Will you open a position when the data has made the market volatile? Or will a new position be opened before the turmoil arises?
What data threshold will be estimated? The trading position will be opened above, below, or both?
How long will the position be left floating?
At the technical level where will take profit and stop loss be placed?
From the explanation above we can know that the news trading strategy needs to be made before the release of a news. So that the optimal profit that you expect can be created.
Another technique about News Trading can also be read on the forex broker’s website – trading news with the economic calendar
Those are some news trading strategies that you can apply. Hopefully what we have said above can be useful for you all. If you still have questions related to the discussion above, do not hesitate to ask questions through the comments below.
By: Main Revelation