Forex news trading is a term which you always hear. You must have heard the saying that news moves the market. This is true in the forex market as currencies are the reliable indicators for countries. As forex trading is based on leverage, the impact of a news is large, it can turn a small response into a large one. News releases provide fresh information on how an economy is performing and if the data is surprising, the market reaction lasts for few minutes, hours and even days. News trading using currencies is exciting risky as well due to the volatile nature that can be affected by news event. Majority of the forex traders trade news because of potential reactions, but these fluctuations can also make news trading a bit difficult.
Directional Bias vs. Non-Directional Bias Trading of Forex News
Forex news trading is a popular method practiced on the market, although not suitable for all. As well as taking a large amount of patience to master. Investors carry transactions based on bigger economic trends and their impact on the market. This requires a certain level of necessitarianism. The market does not always react as expected. News trading demands that you are able to assess market sentiments as economic trends pause, without missing timely opportunities coming your way. There are two main ways to trade the news:
A directional bias- To have a directional bias means to expect the market movement to a certain direction once a news is released. When you look out for opportunity in trading in a particular direction, it is good to know what news causes market movement.
A non-directional bias- A more common news trading method. It does not consider a directional bias and simply acts on the fact that big news create big market movement. It doesn’t matter which way the market moves. Be there when it moves. This means is that once the market movement is in either direction, you have a plan in place to enter that trade. There is no bias whether the price will go up or down, therefore the name non-directional bias.
Consensus vs. Actual News Trading
Days or weeks before a news report releases, there are analysts who come up with some forecast of what numbers will be released. This number might be different among analysts, but in general there will be a common number that will be agreed upon majorly. This number is called a consensus.
When a news report is released, the number that is given is called the actual number.
Buy the rumour and sell the news is a common phrase in the forex market as when there is a news release the market movement does not match the news report. Keeping a track of the market consensus and the actual numbers, can help you predict better which news reports will actually cause the market movement and in what direction.
Forex news trading method is used to acquire profit. It is very important that this is compatible with your philosophy of wider investment. However it is otherwise impossible to accommodate both and make them work together.