Trading on Forex News
There are many strategies that don 't involve using news, but that doesn 't mean news should be neglected. This element can be introduced literally into any strategy, so it is definitely not worth giving them up. And if we take into account that during the news release the market becomes the most volatile and the price passes a large number of points, the profit in this case looks very attractive.
Today we will sort it out step by step:
How the news is used in trade;
How they affect trade;
forex trading strategy on news;
In the trader environment there is a view that trading on the news is for lazy beginners and in the current market any fundamental forex trading strategy, it is only nerves and losses. Such an approach is fundamentally wrong - market panic before and after the release of statistics or the performance of key figures from the world of finance and politics gives an excellent chance to earn both professionals and beginners.
The category of news includes any economic and political events that may cause a price movement in the currency and stock markets sufficient to open speculative transactions. The balance of power between buyers and sellers is also changing, which could lead to new short- and medium-term trends requiring a shift to appropriate strategies.
Most important data that can be traded regularly, but practice has shown that not all events and statistics marked as "strongest" should lead to the opening of deals. Trading on the news, apart from speculation immediately after publication, may also be in the form of short-term positions on the new trend.
How do I find and analyze the news?
The strategy uses fundamental events as well as statistical and economic indicators published in the economic calendar. It specifies in special markers the potential degree of influence (pressure) on exchange rates. Websites usually publish only a general calendar of strong news, which are statistically most suitable for trade. In fact, trading on news includes "small" events, which can be used by traders for more in-depth analysis - they can be found on the Internet, including free options.
Any fundamental forex trading strategy is based on three statistical values: past, future (projected) and current (actual). The degree of reaction of the asset to publication and direction of movement in the next 5-20 minutes depends directly on the degree of discrepancy or correspondence of fact and forecast. Therefore, trading on news requires constant collection of additional data on the reaction of the asset: the average deviation at points from the current price, how long the initial period of uncertainty lasts, typical graphic patterns of work ("rain," spikes, "pin bars), etc.
There may be a situation where the exact time of news release is not specified, which is often the case for Asian currency pairs and securities. Here you need to develop a strategy to open deals on comments or after the actual exit.
Important news and statistics
On myforex, the information background is quite voluminous and multifaceted, so weekly trading system on news for beginners can be accompanied by difficulties in dividing information into global events affecting the market as a whole and regional affecting only one or a maximum of 2-3 assets.
The strategy uses only statistics that, in most cases, result in a significant change in volatility on the associated currency pair or cross-rate. First of all, we need to trade the following fundamental events:
Change of interest (registration) rates and macroeconomic parameters of quantitative stimulation.
Quarterly and annual GDP volumes.
Production statistics: purchasing and production price indices (PPI), volumes of manufactured products in financial and commercial form, etc.
Financial indicators: inflation, consumer and business lending, balance of current banking operations.
Labor market news: size and characteristics of the unemployment rate, including by industry, dynamics of changes in employment and wages.
Consumption data: PMI confidence and business indices (especially in services, construction and manufacturing), export/import statistics: external and domestic trade balances, vacation and retail price indices.
Construction data: housing and industrial, mortgage lending volumes.
Political developments that need to be monitored in the daily trade process include:
Statements by Central Bank leaders and deputies.
Forecasts and analysts of governments on economic issues.
Any information and statements regarding monetary policy in the regions of America, Asia and the Eurozone.
EU and EU meetings and summits G20
The publication of Central Banks "monetary policy protocols is usually published 1-2 weeks after the respective meetings, so speculative throws are minimal, they may not be taken into account in the strategy.
In addition, in the course of trade, it is necessary to bear in mind American statistics that affect financial markets as a whole:
Statements of the Chair of the Federal Reserve. How the market will react depends on the reason and place of performance.
FOMC forecasts, protocols and statements.
Unemployment data non-farm payrolls (NFP).
Reserves of crude oil.
Index of CB trust and ISM non-production activity.
Each asset responds in its own way to the output of American news and needs to collect a separate history of indicators and market reactions. Approximately the same strategy works only for NFP. Commodity statistics and indices should be considered only together with the stock market.
Techniques of fundamental trade
At the beginning of the week we watch the economic calendar and choose the news on which will open deals. We do not forget about management and it is recommended to select not more than 3-4 most important events (not less than 2-3 markers in the calendar). We check the match of time zones in the calendar and trading terminal - it is better if everywhere there will be an exact time GMT (UTC), if not, select the required in settings, otherwise the strategy will not work. Trade on news shows the best results on couples: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CAD, USD/CHF and S&P 500.
The crucial factor for successful trading is the rate at which information is received and sent to the broker server. Make sure your computer and Internet channel are not a "bottleneck" because you will need to make quick decisions in a limited amount of time.
StraddleTrade - Trading on News Using a Pair of Deferred Warrants
Task: to work out the maximum movement regardless of its direction.
About 10-15 minutes before the news is released, delayed orders Buy Stop and Sell Stop are installed at some distance from the current quote. Also be sure to install Take Profit and Stop Loss, which then move behind the price during the trading process until the moment of publication. Then wait for one of the warrants to open in the direction of the price pulse, the opposite is removed.
The main problem with weekly trading system using the StraddleTrade method is to correctly determine the distance at which deferred warrants will be opened. On the one hand, they shouldn 't be too close to avoid a "false" opening or even a "double" foot when the big players try to push out the small ones before the news comes out. But if set too far, there may not be enough momentum to trigger and make a normal profit. Focus on 10-40 points in each direction and watch out for volatility. Trailer stop set on both positions!
The output of events and the response of warrants are better controlled in visual mode. However, trading on the news can also go with the help of advisers, who will automatically open and close the position at the right moment.
Strategy using market rumours
Task: analyzing preliminary announcements, forecasts and rumors about news to try to predict the reaction and establish a delayed warrant only in the direction of future movement.
If the forecast is correct, the warrant works, and we close the Take Profit deal. In the opposite case, weekly trading system on the news simply does not bring profit. The distance from the current price is slightly less than the average volatility of the last 5-7 days.
Almost always after the news is released, a false opposite impulse goes before the "true" direction. A warrant may work, but without reaching Take Profit, it unfolds and goes to the minus, so you must trade with Stop Loss or a trailer stop.
Opening Hedge Items Before Publishing
Task: the news is worked out to the maximum with the help of two opposite warrants, one of which brings profit, and the second closes as quickly as possible.
The strategy is to set deferred warrants as close to the current price as possible, as opposed to StraddleTrade. At the same time, only feet are installed, and the level of profit is not limited. Professionals can also trade without Stop Loss, which gives the opportunity to earn on the first minutes while the market is unstable. After closing the loss warrant, it is recommended to turn on the trailer stop. When the news comes out, there is immediately a loss of the double spread, but the profit from the correct warrant compensates it.
When trading on the news the broker may not allow to quickly close the position in manual mode, so if you dig without footsteps, you can often get into the "lock" and everything loses meaning. Automatic advisers can be used for timely closure to avoid such situations.
Trading on post-release news on bounce
Task: we wait for the end of the first reaction and open in the direction of correction or determined trend.
This forex trading strategy is based on the second part of the principle of "buy on rumours (before release) and sell on the market (after publication)." We remain all markets before and immediately after the release of the event. Let the market make the initial throw, and the bigger it is, the stronger the pullback that follows it must be. The first deal will be traded in its direction not forgetting about mani management, and the next after the market goes in the direction of the main trend together with those who were late for the first reaction.
Not every news can so "surprise" the market that it will give a good rollback. See according to statistics, if such situations are rare, such trade on the news can bring only losses.
Special software for trade - "autoclicker"
Once configured, the program automatically responds to fundamental events and no trader involvement is required at all stages. Tinctures set the time, trading asset, transaction parameters (order type, lot, TP/SL levels, distance from price) and after the actual publication signal the data is transmitted to the terminal, and weekly trading system on the news begins.
The main problems are the wrong opening when the release deadline is postponed, which is quite common, and the lack of reaction to kickbacks. This is quite logical for this type of trade, because most such programs are not connected to systems that automatically send out fundamental signals, such as in Bloomberg trading terminals. The strategy uses services on which information may not be updated or delayed in a timely manner, besides, the work goes only on digital data, and such important events as performances of heads of central banks pass by the car clicker.
This type of trade requires special conditions on the part of the broker by account type (STP or ECN) and speed of communication channels to open the warrant as quickly as possible at the optimal price.
Another problem for beginners is that automatic trading on the news is not free (up to $200 per month depending on the signal provider). However, if the settings are made correctly, you can quickly offset the costs and then work in the plus.
Several practical recommendations
Make sure that trading on the news is allowed by the broker and that the relevant technical and legal conditions are in place:
The ability to trade with a minimum slip that does not change during the trading day;
The absence of requots and spread extensions during periods of sharp increases in volatility characteristic of news output;
There are no preliminary "knock-downs" due to non-market quotations and prohibition of installation of deferred warrants, both in time from publication of news and distance from the current price;
The lack of provisions in the User Agreement allowing for the unilateral cancellation of news transactions with a positive trade result;
Based on these requirements, ECN accounts will be the best option on myforex. However, it is necessary to make sure that the broker actually meets the stated conditions especially for the maximum opening time of the position (from 20-30 seconds to 5 minutes depending on the liquidity of the asset). Trading on news requires mandatory preliminary testing on a real, even a cent account, as on demos usually everything always "works well." And when switching to "living money," things can change dramatically.
Carefully choose the asset on which you will trade: dynamics and volatility over the last 3-5 fundamental moments, average and limit deviation after publication, which will help to correctly calculate levels of Take Profit and Stop Loss, possible force majeure and other factors.
Options for working out news at the same time on several assets are very risky, and as practice shows, do not lead to a significant increase in income. Beginners such strategies are extremely not recommended!
Trading on news is more profitable on index and currency futures than on conventional pairs. They often give an advance reaction, which can then be worked out in the spot market. Before publication the stock market is less speculative, and access to real volumes and glasses of applications, allow to make a reasonable forecast of the direction of the initial impulse and to work it out as much as possible with the help of delayed warrants and normal Take Profit.
If the statistics of the news involve comparison with a certain level or value, say 50, immediately after publication the price will first work out the difference between the actual and projected result, and only then start the main movement. For example, if 45 came out in fact and the forecast was 49, the movement will be stronger than the pair "fact 51/forecast 50."
Separately mention attractive at first glance strategy of transition to exotics such as EUR/NOK, EUR/SEK or cross-courses. They can give fast impulses of 100-200 points, but in fact most of them are for slip and spread. So such trade on the news can generate income only with a clear knowledge of the fundamental data of the second-tier countries, self-control and a good deposit.
Let's sum up the result
Brokers, together with exchanges, constantly reduce the time (ping) of transfer of trade orders and quotations, so the data falls into the general flow almost instantly. Fundamental data put heavy pressure on the price, and most traders subconsciously expect that trading on the news is always an opportunity to earn quickly and much. Such high expectations are used by marketing makers and speculators.
News and statistics come out enough that with them analysts can justify any incomprehensible movement. And set up newcomers with a "news trap" with stop-loss knocking out. But if you decide to use such strategies, work completely on your own: accumulate statistics, do not forget about technical analysis, do not succumb to speculation and question rumors.