News trading has proved to be one of the most popular and dependable trading methods in the Forex market, regardless of competence. Its main advantages are simplicity, quick profits and no need to spend much time in front of the computer.
News trading includes a few stages:
• analysis of information on relevant currency pairs;
• assessment of news importance and its influence on rate fluctuations;
• opening trades and placing stop losses;
• short-term waiting and profit fixing.
What kind of news should be tracked?
News trading is applied to several financial markets: stock market, binary options market, futures market, currency market. So, according to the market, news trading comprises different sets of tools and different trading approaches. For instance, a stock market trader can work in the medium term or in the long term, track the dynamic of fundamental economic indicators, and forecast the movement in the weeks and months ahead. For Forex, the most convenient way would be short-term trading based on sharp volatility increases right before and after news is released. The most powerful impulse leaps are expected in the first minutes following a news release and are allowed for in advance.
There are news releases which almost always result in chaotic rate fluctuations, such as
• publication of important macro-economic indicators that reflect the state of a country's economy and industry;
• political news (start of war, changes of Government);
• news related to the stock of strategic natural resources that can affect a country's well-being.
• information about anthropogenic or natural disasters.
Traditionally, the most expected and analysed releases are non-farm payrolls, FED's and Central banks' statements, GDP dynamics, consumer price indexes, retail volumes, interest rates dynamics, and so on.
Peculiarities of news trading
Some of the above mentioned releases are in part unpredictable, which affects greatly the amplitude of rate fluctuations: the more unexpected a news release is, the more powerful a fluctuation is. As to financial indicators, the situation is more predictable: as a rule, forecasts for leading economic indicators are published in advance, which allows us to assess the situation beforehand. If the actual value of an indicator coincides with or is slightly different from the forecast, no important changes will occur. The most of profit can be made form a situation when the actual value differs significantly from the forecast. For more convenient tracking of such indicators, we have the economic calendar that provides all the necessary information to both a beginner trader and a novice.
Although news trading may seem simple, it has a number of disadvantages that an investor faces in the process of trading. First, the lack of knowledge and competence may prevent an investor from interpreting news and forecasting the next movement correctly. A trader must be able to consider both an indicator and an informational background. For example, information on GDP growth released against a backdrop of hostilities will hardly result in higher currency rates. Second, a news source must comply with a few requirements:
• efficiency: news must be published with the lowest possible delay, as soon as possible, because delayed news won't be helpful: a market reaction will be faster and there won't be any point in opening a trade.
• credibility: news must be verified, or most market participants will simply ignore it and no changes will take place.
• reliability: news must be provided uninterruptedly so that a trader could earn every single minute.
If duly used, news trading can be a really profitable Forex strategy, which explains its popularity with short-term investors that prefer it to any other strategy. Beginner traders enjoy news trading due in large part to the opportunity to make fast profits and avoid the necessity of studying technical analysis. The above factors prove the universal nature of news trading and its popularity with worldwide investors.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.