How To Trade The News
Steps To Trade The News
No matter what happens, the most nimble investors can profit. A key element of your investment strategy should be news trading. A long-term investor might only occasionally trade the news, unlike a day trader who might do so several times during a session. Learning to trade the news is crucial for astute portfolio management and long-term performance, regardless of your investing horizon.
Steps to trade the news:
- Have a trading account
- Track the trading event
- Finding the best trading opportunity
- Include technical analyses
- Follow news related to forex
News can be broadly divided into two categories
Periodic or Recurrent
This refers to news released regularly and affecting the markets. Examples include Federal Reserve interest rate announcements, releases of economic data, and company quarterly earnings reports.
Unexpected or One-Time
These are sudden occurrences, such as a terrorist attack, a sudden geopolitical uprising, or the threat of a country with high debt beginning to default on its obligations. Unexpected news is generally more likely to be bad than good.
News can affect a single stock, specifically, an entire sector or the markets as a whole.
How to Trade the News
Forex trading news can become more active before and after significant economic events, just like other asset classes. However, the news that distinguishes currencies from other financial markets differs significantly.
Macroeconomic news, or events that reflect or impact overall economies, tends to have the biggest impact on forex markets. In general, FX traders can estimate the impact of economic news on interest rates and monetary policy. While dovish (calm) news can make a currency depreciate, news that signals a more hawkish (active) central bank tends to push FX pairs up in value relative to other currencies.
News about forex trading can impact nations' currencies that export many raw materials or commodities since it impacts the cost of the key goods they manufacture. A common name for these currencies is resource currencies. Supply and demand issues may impact the prices of commodities that affect these currencies.
News indicating a higher supply can lead to a decline in prices, while news indicating a lower supply can raise prices, subsequently impacting linked currencies. Political unrest, conflicts, terrorism, weather, economic penalties, labour relations (strikes), and other news items may indicate changes in supply. Demand-related speculation and pricing are primarily driven by many of the same significant news announcements as mentioned above, as well as commodity inventory updates and outlooks.
Executing a News-based Trade
Step 1 - Have a Trading Account
Although this may seem obvious, it is essential for successful news trading. News trading aims to profit from events immediately; you can only do this if you. Particularly during a news event, the broker should be regulated and able to ensure prompt order execution and competitive spreads. To enable mobile trading, a competent broker will also have multiplatform capabilities.
Step 2 - Track the Trading Event
News trading is only useful if you know the information about the underlying asset you desire to trade. The Economic Calendar is a great tool for keeping track of news because it also shows how much of an impact a news event is anticipated to have on the underlying asset.
Step 3 - Find the Best Trading Opportunity
The general concept when trading the news is ensuring you are on the winning side. In other words, your transaction is coordinated with the action after the news announcement. Trades can be made before, during, or following the release. Trading before an event suggests that you have a directional bias and will profit if correct. If you're wrong, however, you can suffer severe losses. Trading after a news event has been released might be wise because you will be trading with real facts. Spreads often increase when news events are reported, and there is no assurance that prices will move in the direction suggested by an actual news release. It's a good idea to place transactions after a news release because you'll have observed how the market responds to the event. The earning potential could, however, be lessened.
Step 4 Include Technical Analysis
By including technical analysis, news trading can be highly successful. Whatever trading opportunity you intend to take advantage of through news trading, it is crucial to keep an eye out for the key technical features of the underlying asset. Crucial that will act as price goals for both take gains and halt losses before the news release. Before, during, and after a news event, technical instruments and even oscillators can help discover value price locations to target.
What Releases Are Important?
Understanding which releases are anticipated that week is the first step in trading news. Second, it's crucial to understand which data are crucial.
In general, data on changes in interest rates, inflation, and economic growth, including retail sales, manufacturing, and industrial production, are the most significant:
- Decisions about interest rates
- Central bank decisions and declarations
- Inflation rates
- GDP figures
- Price hikes (consumer price or producer price)
- Mass unemployment
- Surveys of business sentiment
- Surveys of consumer confidence
- Trade balance
- Surveys of the manufacturing industry
The relative relevance of these releases may alter based on the situation of the economy at the time. For instance, this month's trade or interest rate decisions are less crucial than the unemployment rate. As a result, staying up to date with the market's current priorities is critical.
News about the state of the market can also affect currency trading, especially in haven assets like precious metal gold and well-known currencies like the USD, JPY, and CHF. These currencies frequently experience capital inflows during turbulent times and outflows when the financial markets stabilise.
Stock market returns and volatility, financial strains on a national or continental scale, political unrest, elections, treaty negotiations, and other wide news beyond economic data and central banks are just a few examples of the news that can impact risk-on, risk-off trade. The Greek debt crisis and the unrest in the Chinese market are two recent instances.
News focused on forex
The demand for numerous goods and the price of those commodities fluctuate with the seasons. Traders should be aware of this. Energy and agricultural commodities typically experience the effects of seasonal forex trading news more than precious metals. The primary resource currencies and the commodities influencing them are listed in the table below. Due to their ability to forecast where the currency's price is headed, traders can employ these as a forex news trading signal.
- Decisions about interest rates
- Central bank decisions and declarations
- Inflation rates
- GDP figures
- Price hikes (consumer price or producer price)
- Mass unemployment
- Surveys of business sentiment
- Surveys of consumer confidence
- Trade balance
- Surveys of the manufacturing industry
The relative relevance of these releases may alter based on the situation of the economy at the time. For instance, this month's trade or interest rate decisions are not as crucial as the unemployment rate. As a result, staying up to date with the market's current priorities is critical.
News about the state of the market can also affect currency trading, especially in haven assets like precious metal gold and well-known currencies like the USD, JPY, and CHF. These currencies frequently experience capital inflows during turbulent times and outflows when the financial markets stabilise.
Stock market returns and volatility, financial strains on a national or continental scale, political unrest, elections, treaty negotiations, and other wide news beyond economic data and central banks are just a few examples of the news that can impact risk-on, risk-off trade. The Greek debt crisis and the unrest in the Chinese market are two recent instances.
News Focused on forex
The demand for numerous goods and the price of those commodities fluctuate with the seasons. Traders should be aware of this. Energy and agricultural commodities typically experience the effects of seasonal forex trading news more than precious metals. The primary resource currencies and the commodities influencing them are listed in the table below. Due to their ability to forecast where the currency's price is headed, traders can employ these as a forex news trading signal.