News releases are one of the biggest drivers of price action activity in the forex market. Economic data, as well as news touching on geopolitical developments in some of the biggest economies also causes currency prices to fluctuate in the currency market. Likewise, traders and automated trading systems study and analyze news releases to ascertain ideal entry and exit points in the forex market.
News trading is, therefore, an important trading strategy in addition to trend trading, scalping, hedging, as well as arbitrage trading. Contrary to perception, currency markets do not respond to U.S economic data alone but also to news from all over the world as well as geopolitical developments.
News Releases to Watch in the Forex Market
One of the most important forex trading secrets is to know which releases are expected to influence price action activity during the week. In addition, it is crucial to know which data is vital and likely to trigger wild swings in the market.
Employment data from some of the biggest economies, of the likes of the U.S, Germany, the U.K as well China are closely watched when it comes to news trading. The data is closely watched as it shows the level of unemployment and unemployment rate that can create economic strain.
Some of the data to watch underemployment data include unemployment rate, unemployment claims as well as employment change, and Non-Farm Employment Change.
Traders, as well as forex robots, also closely study and analyze trade balance and gross domestic data of the major economies as they influence price action in the forex market. Some of the data to study on this front include Consumer Price Index, manufacturing Data, Producer Price Index, and Retail Sales data.
Central Bank & Policy Makers
Central banks and monetary authorities are the biggest influencers of price action in the forex market. The policies that they pass influence trading activities across various currencies and currency pairs. Monetary policy statements released by the likes of Bank of Japan, Bank of England as well as the European Central Bank and Federal Open Market Committee are also a must-watch in the forex market
News Trading Strategies
News releases are known to trigger increased levels of volatility, leading to wild swings in the market. Likewise, FX Expert Advisors and traders deploy news trading strategies to profit from wild swings that come about as traders react to news headlines
Spikes are a common phenomenon when important news or economic releases such as Non-Farm Payrolls or GDP Data hit the wire. Big economic data sends shockwaves triggering spikes in chart patterns. As one of the most essential money-making hack, it is important to wait for dust to settle.
With the trading spike strategy, it is important to identify the range within which a currency pair is trading before a big economic release. Awaiting the economic release 5 minutes before, place two orders either manually or with the help of algorithmic FX trading systems.
In this case, a pending buy stop order can be placed 20 pips above the current price range, and a pending sell stop order 20 pips below the current price range.
Take profit orders, in this case, can be placed 40 pips above the buy stop order, and 40 pips below the sell stop order. Once one order is filled, it would be wise to close the other order as price is likely to move in one direction in this case.
Trend Following Strategy
The trend-following strategy in news trading strategy involves using multiple time frames. In addition, it is important to use some of the best forex indicators to identify support and resistance levels in chart patterns.
The strategy finds excellent to use when market price approaches a key support and resistance level but not yet there. Increased level of volatility that comes with big news releases many at times pushes through the support and resistance level. Likewise, it is important in this case to trade in the direction of the trend.
With the trend trading strategy:
- Use a daily chart to identify trend direction
- Draw support and resistance level
- Select a time frame of between 1hour and 4 hours
- Buy near support in case of an uptrend
- Sell near resistance level in a downtrend
While deploying this strategy, it is essential to use tight stop-loss orders as a news release can break through a long-standing level of support and resistance.
News Reversals Strategy
Price reversal tends to happen with big news releases. For this reason, it is important to study price action after a news release for between 10 and 15 minutes. With this strategy, it is important to focus on a sudden sustained reversal in direction after a strong price move.
A closer look at the chart above, it is clear that the price moved downward after a news release. However, afterward, it reversed and started moving upwards. The ideal entry point with a news reversal strategy is when price breaks above or below a pre-release level.
Economic releases are a big driver of price action in the forex market. For that reason, it is essential to know when the reports are expected and understand the kind of impact they are likely to have. The use of automated FX trading systems such as FX expert advisors relieves one of the burdens of reading and interpreting news releases.