Forex News Trading

Economic news releases often evoke strong moves in the currency market, creating a lot of short-term trading opportunities for breakout traders.

However, not all news reports are tradable. Some of them may not have significant effect on the market while others do. So, before deciding on trading the upcoming news traders may want to find out whether the news is worth trading or not. Traders can find about the significance of the news by looking at the economic calendar's special features, such as, for example, marking all important news in red.

There are two general approaches to trade news:

1 — By "guarding" the breakout channel

Traders simply set Buy and Sell limit orders on both sides of a price channel, so when the news comes out one of the orders will probably be hit. Although this method is very simple, it also carries real risks of potentially hitting two orders: Buy and Sell as the market is shaken by the news report. In such "double-hit" situation traders will face losses on one or sometimes even both trades.

2 — By actually analyzing the data

Traders can predict most probable outcome of the news by looking at such economic calendar fields as: "Forecast" and "Previous". Figures in those fields can give an idea about the current situation.

Then, traders would watch the news report and pay attention to the actual numbers released. If the numbers come as a surprise — means they are not close to what was expected / forecasted, then traders would consider opening trading position regarding to the situation. If the data carries positive surprise — they would open Long position, negative — Short. This news trading requires more attention from traders, but is also more effective as it carries lesser risks.

When are economic news released?

What you should know about trading the news in Forex

1. Even if you do not trade news it is important to know about the date and time the news are due, to be able to prepare to possible short-term extreme market conditions. Some traders, actually, prefer not to trade at all during economic news releases.

2. The fewer the price moves before news releases (when it may seem like everybody has abandoned trading), the greater is a potential for the market to burst out after the news report.

3. Breakouts following the economic news reports exist for very short period of time — from several minutes to several seconds — it is a first reaction of the world to the news.

4. Generally, if the news did not carry any "surprises" — unexpected data — there will often be no significant reaction in the Forex market.

Sourcing:
http://www.forex-fundamental-analysis.com