Secrets And Reality Of News Forex Trading Strategy
Economic data release is an opportunity to gain profit. However, traders rarely know what News Trading is and how to develop the right News Trading strategy.
News Trading, or Trading The News, is a technique for trading stocks, currencies (forex), or other valuable assets in financial markets based on trading opportunities that appear around the release of a news. Some of the news that is often the subject of News Trading strategy is Non Farm Payroll (NFP) and Gross Domestic Products (GDP) United States. In the forex market, each can trigger a movement of up to hundreds of pips in a short period of time, so many traders are looking forward to the moment of the announcement. However, not many traders understand what is News Trading.
Misunderstanding About News Forex Trading Strategy
Data and economic news (news) including one of the forex market drivers; this is known by everyone. However, the way News influences the market actually differs from most traders’ assumptions. Indeed, the release of economic data is not only an instantaneous impact on financial markets, but a reflection of the state of the country . In this context, it can be concluded that the impact of News is not just in the moment after the release only.
The majority of beginner forex traders assume that News will be directly reflected in price movements. Therefore, they then complain and question when the price does not move directly in the “right” direction, saying that News Trading is “impossible”. For example when the GDP data declines, but the US Dollar is even stronger, or flat without signs of faltering.
Though in fact, many also apply the News Trading strategy and prove that it is one of the profitable techniques. Only, there are some things to keep in mind about this News Trading.
Pair Currency and Time News Forex Trading
Not all currencies can be a focus in News Trading. In the forex market, traders generally only choose the most liquid currency pair as the subject of News Trading . Among them:
- EUR / USD
- USD / JPY
- AUD / USD
- GBP / USD
- GBP / JPY, and others
Amongst all that, pairs related to the US Dollar have a tendency to be the biggest impact on the market . Also, the most bombastic impact news is usually released around the New York Session, because the market is the most crowded and volatile in this period. Not that there is no data release that can be used as News Trading material in other moments; only, this is the most profitable time.
In accordance with the saying “High Profit, High Risk”, then with the same direction, the biggest potential loss. It is clear that News Trading in these times will require a solid Money Management technique, if you do not want to be run over by price movements in the market.
Kinds of News Forex Trading Strategy
One more misleading about the News Trading strategy among traders, namely that this technique can only be done around the time of economic data release. In fact, there are various types of News Trading strategies, and each trader can develop his own system in terms of determining exit and entry.
- Installing Traps On Two Sides Of The Market
Some traders put positions on two sides of the market before the release of an important news using hedging-like techniques. Here, traders open pending long and short positions in the same currency pair before release, but new executions are launched after the news comes out. They may experience loss on the one hand, but are expected to get a much bigger profit on the other side. There are several variations of this type.
The first variation, once the economic data numbers are released, the trader will take profit from the first trading position. At the same time, the trader allows the other position to lose to floating until the market returns to its normal path after euphoria the news release ends and the amount of loss decreases.
The second variation, traders put a stop loss on both sides. Once the stop loss is touched on one side, the only winning position is left floating in order to get additional profit or be liquidated as soon as possible, according to market conditions. This variation has been practiced by one of SF writers and his experience is outlined in the article Utilizing the Euphoria Market When Release News .
- Long-term trading
A number of academic studies suggest that the impact of a number of economic data releases can extend to weekly or monthly periods, more than just one day when the announcement is made. Some of the big and long impact data are Non Farm Payroll and Federal Reserve interest rate decisions.
Although the market reacts spontaneously, the consequences of the interest rate mechanism and employment conditions will remain in the long term in various economic sectors. That is, using such data as the basis of News Trading strategy in the long run is certainly possible.
Traders who use this technique usually build their position little by little based on economic data released not too often, such as quarterly GDP. They also usually compile a compilation of updates and revisions to other important economic data related to the pairs that are traded from time to time in order to determine whether the direction of price movements of a currency or pair in the future tends to be bullish or bearish, then open a position in the direction of the conclusion . Details like this seem to be behind the success of a number of world billionaires .
- Short Term Trading
To implement the News Trading strategy with profit targets in the short term, the trader must first have a clear picture of what kind of News can be traded. In addition, a trading system contains condition criteria in which entry and exit positions are installed also need to be compiled. Traders also have to be really disciplined in applying the methods that have been made. Examples are described in Core Mitchell’s Simple NFP Trading Strategy .
Develop a News Trading Strategy
One thing that every trader needs to keep in mind is the element of market uncertainty. No matter how we have prepared the system, there is still a possibility of loss because conditions are not in line with expectations.
Similarly in News Trading. The market reaction to any economic data is unpredictable . There is a possibility that the data will be released according to analyst expectations spread by financial news agencies, but there are times when the release results are very far from expectations.
Moreover, it is almost impossible to guess how volatile a market reaction to a News Release . It could be a market move 50 pips, 100 pips, 200 pips, or just unmoved. The direction can continue the previous trend, it can also turn drastically, or even flat. Sometimes even 50 pips of movement directly rewarded by turning 150 pips.
The cause of uncertainty is the number of speculators who play on the market and all intend to get instant profits. This will trigger spread and trading volume increases in a short time. However, at the same time, the technical background of the price movement will fade . Once this “ninja” trader gets out of the market, it’s Momentum Trader’s turn to jump into the market and spawn short-term trends.
All this does not mean that Trading Trading is impossible or difficult . News Trading is not much different from the technique of looking for opportunities in other forex market. What a trader needs to keep in mind is that he is engaged in a game of probability. He needs to understand that he cannot make sure the market moves in a certain direction, so that Money Management and proper risk control need to be applied. Stop loss should not be too tight, while a combination of Leverage and Position Size should be moderate .
Taking into account all that, then the order to consider in making a News Trading strategy include:
- Will it open a position only when the data has triggered the turmoil in the market? How big is the turmoil (in pips size)? Or open before the turmoil shows up?
- How much is the estimated data threshold, and will the trading position be opened above, below, or between the two?
- How long will the trading position be floating?
- At the technical level where Take Profit and Stop Loss will be placed?
News Trading Strategy needs to be made before news release time. When the anticipated moment arrives, the trader needs to move like a full EA robot automatically obeying the strategy, to be free from the often irrational market behavior and wallowing in euphoria.