Trading on the news is one of the most famous and widely used Forex trading strategies. This strategy is used by both novices and professional traders on any trading platform. With the correct approach, an income from this trading technique may be high and stable.
Let’s look at some points and the advantages of the news trading strategy:
- Trading on the news is closely related to the news release thus it reduces the time that the trader spends in front of the computer.
- A trader may automate his trading strategy by using pending orders.
- Usually when the important news is released a trader may expect a strong movement to the certain direction and it gives a great opportunity to enter the market with big lots that significantly increases the profits.
The basic of the trading on the news strategy:
One of the factors that influence on currency movements is the economic news. This is a fundamental indicator that displays the level of economic development of the certain country. Inflation, unemployment, GDP, and much more – all this is very important for the currency of the country.
Such data and statistics are released due to a certain schedule and immediately become available to everyone, including Forex traders. At that moment a psychological reaction takes place, when a lot of traders and investors open positions to one direction and it causes a strong movement in the Forex market.
For example, the UK interest rate was reduced for 2 years in a row, that indicated the stability of the GBP, and suddenly, one time it was raised by 0,5%. Accordingly, everyone was expected the interest rate of the UK to be reduced again but such unexpected news caused a lot of chaotic movements of the GBP currency pairs in the Forex market.
It is very important to consider what the market’s participants are anticipating before the news release. If the deterioration in the economy of the specific country is expected and the news corresponds to the expectations, the price movement will be stronger.
When using the news trading strategy, first you need to determine what factors will influence the market. These are the following data: interest rate (it is defined by the central banks), inflation, GDP and industrial production, as well as indexes of business activity. A special place takes the indicator of the nonfarm unemployment rate in the United States.
It is a fact that the release of this news has a pretty strong influence on the USD. Also as part of the important news you should consider the statements and speeches of the financial officials (most often from the USA, UK and EU countries, and also Japan, Switzerland and Canada).
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