Investing in the news is a great opportunity you can’t afford to miss. In the forex market, news trading provides the greatest opportunity for profits since it can generate instant profits within minutes.
Traders tend to avoid trading the news because it can be intimidating, and they exit their positions before major events or move their stops to break even. An intense experience can be had to watch a news spike live.
News traders abandoned the news market due to fast, volatile price action and bad brokers who practice stop-loss hunting, spread widening, and artificial slippages.
How to trade the news?
Forex News Trading Strategy No.1 – Straddle Trade
Strangle trades involve taking both sides of a price movement on a short-term basis. We generally place BUY STOP/SELL STOP orders around the current level when we’re expecting an important move in the price but are still determining in which direction it will go, hoping to catch the movement through one of two pending orders.
News trading srategy no.2 – OCO trading
The OCO (one-cancels-other order) consists of two orders that cancel each other. Unfilled orders automatically cancel when market movements fill either order. By managing orders this way, only one order can be executed.
Forex trading strategy no.3 – Sell the news and buy the rumor
Rumors move prices in anticipation of the news; profit-taking occurs after the news is released. This is known as buying the rumor, selling the news. In other words, prices rise as rumors spread and decrease when the rumored event occurs.
Forex trading strategy no. 4 – Only order the market in the direction of the main trend
Developing a trading strategy based on forecasts and executing it at the moment of news impact is challenging, as there is no guarantee that it will work every time. Traders should therefore combine news trading with overall technical analysis.
The combination of news trading and proper technical analysis will help a trader diversify his entry methods and increase his chances of being profitable in the long run.
News trading on forex: Factors to consider
The element of surprise
This is the content of a prescheduled announcement:
- Last month’s figure
- This month’s forecast
- Actual release figures
There can be some spectacular moves in short order, depending on the difference between the actual number and the forecast.
Price volatility
The volatility of a currency measures its risk. An exchange rate that fluctuates rapidly in the short term is considered volatile. In the longer term, a low volatility rate means that the exchange rate prices move slowly.
The higher the volatility of a trading opportunity, the higher the return, meaning that a trader will make more money quickly. An investment with high volatility, however, is riskier.
High-quality broker
A poor broker is unlikely to let you profit from trading on news in the short term if you trade with them. Traders are most likely to stop trading news by using dirty practices such as:
Stop-loss hunting and spread widening: Traders may experience an increase in a spread for a few points when their stop-loss is close to the market price.
Slippage: Getting a different price for entering or exiting a trade than expected.
The broker must offer instant execution if you will successfully trade on the news, as news trades happen quickly.
Bottom line
News trading takes advantage of market volatility to increase profits during news events. Most traders follow an economic calendar to predict upcoming macroeconomic events, keep up with prescheduled news announcements, and analyze government reports on economic indicators. To adapt their trading strategies in response to an upcoming economic event, most traders find it useful to be aware of the upcoming event’s time.
