forex news trading

There are many strategies and methods to trade forex, some are better than others but in the grand scheme of things, most of them yield pretty much the same results. It is mostly up to the trader themselves to determine whether a specific strategy is useful in a given situation.

However, there are some that are applicable to any situation, and that strategy is the news trading strategy. Let’s take a look at how it works, what happens when we trade forex on news, and how we can perfect it.

Perfect time for forex news trading

The timing for forex news trading always depends on what currency a person is trading. For example, if you’re trading the USD, then it’s best to work with New York time as that’s where most American news companies are based and focus on.

The same goes for London time for GBP, Berlin time for EUR, and Tokyo time for JPY. It’s just a matter of where the news companies are based and which market they are trying to target.

Timing is very important because when the news starts coming out in the morning, it’s a “dogpile” of trades that the people need to make very quickly as to take advantage of the changes these news pieces will cause, especially on Monday.

Which news should you pay attention to?

There are not too many things to focus on when you trade news on the FX market or any other asset, to be honest. Whenever an asset has some connection to a country’s economy, here are the most important sectors:
  • Interest Rates
  • Unemployment Rate
  • Trade balance
  • Budget balance
  • CC (Consumer Confidence)
Although not all of these have a direct impact on the exchange rate of a currency, they have an indirect impact through the speculation they cause. For example, if a large private bank sees that consumer confidence is going down in the whole country, that would immediately send a signal that people will not buy as much anymore, so the economy will decrease, followed by the exchange rate of the currency.

For retail traders (for people like you and me) news pieces are just signals on how the big traders like banks are going to react. So it’s a preparation for the inevitable. It is very important that you see the news as soon as possible. Banks have whole departments dedicated to keeping up with the news and then relaying information to their professional traders. The difference can sometimes be in the seconds before the market changes as banks place their huge trades.

Why is this strategy effective?

The reason why forex news trading is effective is that it’s used everywhere. Traders use news when doing technical analysis or fundamental analysis. Casual traders just look at what’s going on in the economy and try to guess the outcomes based on their own experience. Large traders or as we call them “Institutional traders” sometimes are the cause of such news, so there’s no beating them to it, it’s just a matter of being ready when it happens.

No matter what some people may say, trading forex on news is an integral part of trading in itself. If it wasn’t, well we wouldn’t have such wealthy media companies.