Forex strategy and news

  

  In this section I will talk about the different ways how you can trade forex during key economic news events and I will also present you some populat trading strategies.I recomment you to adapt the strategies and to develop your own methods that fits you best.

Why trade the News?

Trading news releases can be a very powerful tool in your trading arsenal.Economic news reports often spur strong short-term moves in the market, which are great trading opportunities for breakout traders.Because the FX market is opened 24 hours a day you can catch many opportunities almost every trading day.Also, the great thing about focusing on news releases is that they are scheduled in advance, so you know exactly when you can schedule your trading hours.Here we will focus on U.S. news and economic reports, because the U.S. dollar is involved in a majority of currency trades, and therefore tends to have the most significant impact on the currency markets. You can see below a list of some of the top U.S. market moving reports:

-Employment Growth
-Interest Rate decisions
-Trade Balance
-Gross Domestic Product
-Retail Sales
-Durable Goods
-Inflation reports (Consumer Price Index and Producer Price Index)
-Foreign Purchases report (TIC Data)

Ok,everything seems to be extremely easy and you are just starting to dream about zillion of pips BUT not so fast.Now I feel responsable to tell you about the other side of trading forex:RISKS.Don't forget,you trade forex at your own risk!I will describe briefly some of the most important risks you will expose to when you are trading the news.

Firstly, an important factor is slippage:during important news releases market volatility can increase geometrically and the price can move from 5 pips to 50 pips or more in the matter of seconds.If you try to get your order filled during this type of volatility, you will probably get filled at a much different price than you anticipated.News volatility can be very dangerous, even for experienced traders. Even if you catch the strong initial move the situation can turn against you into a losing trade just as fast as you got in.

Spreads

During news events spreads can change dramatically (a 3-pip spread can turn easily into a 14-pip spread during a report) so if you want to take small profits(5-15 pips) it could be a dangerous job or maybe a losing trade.

Order Freeze

Usually brokers who guarantee fixed spreads will prevent limit and market orders right before a major news release.This thing happens because the spreads on the market will grow and the brokers with their fixed spreads will lose money.

Most common used news strategies:

1.Trading the Numbers
2.Straddle the News
3.Hedging the News

1.Trading the Numbers

Traders want to take advantage of the discrepancy between the forecasted and the actual key economic number when trading the numbers. To apply this method you need a very fast news data feed such as Reuters or Bloomberg because you want to get in the trade before the spike begins.

Steps to trade the numbers:

- Subscribe to a fast news datafeed at Reuters or Bloomberg

- Track the news and determine the significance of the news report being released. Not every news report release is tradeable; if it's not important do not trade it!

- Then you must see if the report or economic number being released is inline with what the market is expecting.If the report or number was a good one and/or a good surprise for a country, then you would go long its currency, and vice versa.

- Finally if you decided it's a good trade you must trade the numbers.

2.Straddle the News

This strategy is very simple and consists of 2 limit orders, one to buy a few pips above the range high and one to sell a few pips below the range low, then wait for the price to breakout triggering one of your orders.If the report creates enough volatility your orders will be automatically triggered, and your stops and profit levels will also be automatically executed if hit.It sounds very easy, but you must be very cautious with this method in that both long and short orders can be triggered, and if profit targets and stops are set incorrectly, you can be get maximum loss on both orders.

3.Hedging the News

Hedging enables a currency trader to simultaneously hold Buy and Sell positions in the same currency pair at the same time in one trading account.

Hedging News Strategy:

1. To hedge, go both long and short at market price 30 min before the news release.
2. Add a protective stop loss order to both long and short positions 30 seconds before the news release.
3. Add a limit order to both long and short positions 30 seconds before the news release.

Possible scenarios after the news release :

Whipsaw or false breakout - both stop losses can get hit.
No movement - nothing will happen to your open positions.
Price breaks out - one of your stop loss orders will get hit and hopefully, you will reach your target level on the remaining open position.

How to Scalp The Forex Market

Scalping is a trading strategy that relies on more frequent and short-term trades than any other strategy.Forex Scalping can also be called a quick trading. It is a method where traders allow their positions to last only for a matter of seconds, to a full minute and rarely longer than that.The purpose of scalping is making small profits while exposing a trading account to a very limited risk, which is due to a quick open/close trading mode.There wouldn’t be any point in scalping for many traders if they weren’t offered to trade with highly leveraged accounts. Only ability to operate with large funds of, actually, still virtual money, empowers traders to profit from even a 2-3 pip move.

How does it work?

Suppose a scalper opens a trading position of 100 000 units with EUR/USD. For each pip he will now earn $10… Closing in with only a 3 pip profit brings it up to $30 — not bad for less than a minute of work.Scalpers are the bane of brokers. They often make trades on a position before the broker even has time to fill the first order. Thus, the brokers actually lose money from the transaction.So, if you are a trader looking to try scalping as a strategy, your first step would be to find a broker who doesn't object to scalping.

Swing trading Strategy

Swing trading is a style of trading used in the forex market that aims to make gains by holding positions for a period ranging from one day to one week on average.The short term nature of swing trading makes it particularly effective for forex traders. In general, the lack of commission fees or significant spreads at most brokerages makes most strategies that are based on short term trades aptly suited to the forex market.

Trend Trading

Trend trading is a basic trading strategy that works particularly well in the forex market. Try to buy low just as things are about to pick up, and then sell at or just before the peak value in a particular trend. The steps are simple: first identify a trend; next, the you must predict where the trend is going to stop, and then hold your s position until the currency either breaks the trend of reaches the pre-ordained sell point.It's important to trade with relatively tight stops when you're trend trading, to protect against a possible loss in the case your scenario was wrong.

For more info about trading strategies we recomment you to acces our free forex e-books or forex books sections of our site or these books from amazon.com

GO TO Stage 5 - TOOLS

GO TO Stage 1 - FOREX Basics

GO TO Stage 2 - Fundamental Analysis

GO TO Stage 3 - Techical Analysis