How to Trade the Major Forex News Releases Professionally

How to Trade the Major News Releases Professionally

 

Trading news, economic reports and other releases are important influencing factors in the financial markets and, thus, also impact your trading. There isn’t a day without a report coming out and/or someone with an important announcement that can potentially affect the markets. These events can often cause volatility and abrupt changes in momentum and trend direction. In this article, we show you how news impact the financial markets, what this means for your own trading and provide you with some trading tips around such events.

 

Before the news – market reactions and trading tips

Price behavior before an important news event usually follows very similar patterns. First, volatility and momentum are often flat and price enters a sideways range. This happens when traders and investors are unsure about the numbers behind upcoming report. Thus, no new positions are taken and price just moves sideways.

Sometimes, you can see sudden volatility spikes – when trading activity is low, relatively small orders can have a big impact on price movements. Thus, when you see that your market is entering a sideways market, it’s usually a good idea not to enter any new trades to avoid getting trapped during those sudden spikes.

If you are in a trade and an important event is coming up, there are usually a few options: first, if it’s a high impact event (speeches, meetings, GDP, interest rate decisions or NFP-Non Farm Payroll), it’s usually a good idea to take profits on the trade completely. Or, you can move your stop loss to protect your position – keep in mind that sometimes, stops may not work during high volatility times because there could be gaps in price movements.  Finally, you can take partial profits on your trade and secure some wins and then wait it out with the rest.


Trading The News Pre-Release

Charts Courtesy of TradingView

Start thinking outside the box and follow expectations

When it comes to interpreting and understanding news releases, many traders make the mistake of just looking at the released number, see if it’s higher or lower and then enter a trade. This is wrong and traders who follow such an approach will often experience losses without really understanding why.  The markets are not “logical” in that sense.

For most news releases, you usually get an expected number beforehand – those are experts’ estimates and they are available to everyone. Thus, such numbers are often already priced in going into a news release. Therefore, it’s much more important to evaluate how the actual releases compares to the expectations than just looking at the gain/loss.

When you are following a news release, always look for the following:

  • How does the released number compare to the expectations?
  • Major differences between the actual and the expected number often leads to a lot of volatility
  • How does the released number compare to the previous numbers
  • When expectations, previous and actual number are all pointing in the same direction, you get –the best movements. When those numbers are not aligned, you usually just see an increase in volatility without directional momentum.

 

How to trade the news

Now that you have a better understanding of how to position yourself before news and how to interpret news releases, we can take a look at tips on how to trade the actual releases. For that, there are only two advices you need to be aware of:

 

#1 Look for consolidations and then the breakout

Not all news events are trade worthy and will offer good opportunities. The best trading opportunities during news events exist when you can see a tight consolidation before the event. The narrower the range before the release, the more traders are watching the release and the better usually the follow through. However, there is a catch as we will see.

Trade The News Channel BreakOut

Charts Courtesy of TradingView

#2 The first reaction is usually a fakeout

When you see a narrow range before the event, you can usually expect to see sudden spikes into opposite directions during the release. Those volatility spikes have the goal to take out traders who have entered too early and with stops that are too tight. Also, when you see that the expected, the previous and the actual numbers are not pointing in the same direction, it usually takes traders and investors some time to figure out what that actually means and trading can be very wild.

Thus, always wait for the initial move to reverse and then see if price takes off into a new direction. This way, you will sometimes miss news trades that just take off, but you will also stay away from lots of wrong signals and be left with more accurate trades.

Trading news events

Charts Courtesy of TradingView

The most important news events that affect futures and forex traders: 

1. Interest rate announcements
2. Retail sales 
3.Consumer price index (proxy for inflation)
4. Unemployment data (jobless claims, NFP, earning)
5. Industrial production
6. Business sentiment surveys
7. Consumer confidence surveys
8. Gross Domestic Product – GDP
9. Crude Oil Inventories

There is a substantial risk of loss in futures and trading. Past Performance is not indicative of future results. he placement of contingent orders by you or broker, or trading advisor, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders

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