Macroeconomic variables like unemployment and inflation play a bigger role in affecting the balance of payment structure of a country. A country always wishes to make its exports exceed its imports. This also determines the relative price of currencies because of the change in demand and supply of the same.
Experts believe that valuing macrocosmic variable gives an insight into its relative demand. Thus an extremely inflated currency will obviously lose its values and traders might not choose to trade it against other currencies. In order to trades the news Forex strategy, one need to understand the basis of currency fluctuations.
Thus if the American economy suffers a serious setback owing to internal policy failures, an adverse supply shock might help fluctuations to affect currency values. Currency value speculations depends on various factors, most of which are related to real time economic occurrences.
Economic news updates are an integral part of trading currencies for trading the news in Forex strategy and finding a suitable position to trade with. Someone trading in his/her initial trading days might choose to trade with a demo account depending on the list of offerings by the concerned Forex broker.
How to identify elements for trading the Forex news strategy:
Adverse balance of payments may arise due to several factors, and they are responsible for affecting the currency values. Consider the fall in demand for a particular good country X is exporting to country Y. Due to change in taste and preference patterns of Y, they may choose to import the same from country Z.
Thus the continuous flow of foreign currencies which X faced suffers a setback, and its TOT (Terms of trade) value falls. Again, rise in factor costs may also lead to adverse BOP in X. at times like these, a Forex trader needs to take into consideration the relative fall in value of X’s currency. A short-term trader may choose to trade news Forex strategy with smaller volumes owing to the sudden fluctuations.
Before defining a particular strategy set, one needs to identify adverse situations that sudden news announcements may pose. Since currency values are interrelated, change in value of one currency might also affect that of other currencies. So while a trader may choose to sell a large volume of a particular currency, there should be counter party who should be ready to buy it as well.
Criteria that need to be fulfilled before you Trade the news Forex strategy:
Traders should be able to identify potentially profitable situations and understand when to enter/exit to trade Forex news strategies. Trading currencies need proper alignment of all the factors that determine the trading criteria. Whether one is more dependent on the price action trading strategies, also determines how to identify potential triggers to trading.
One should calculate the relative risk: reward ratio and understand net profit-making news Forex strategy. Thus scalpers might need to concentrate in minor fluctuations while long-term traders need a bird’s eye view of the entire fluctuating scenario.
While news announcements definitely play their role in affecting your trading strategies, you should also understand the implications of choosing a particular lot size and use of stop-loss mechanisms. The risk per unit trade is crucial because traders trading with larger volumes are most likely to affect the market more than short-term trading. Thus to trade the news Forex strategy, one needs to keep himself updated all the while.
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.