Can you really trade FX news with any potency, consistency and profitability? Fundamental, economics driven newsfeeds certainly can cause monumental shifts in the price of a currency pair – in this article we look at some ways of improving the odds in your favour when trading the FX on newsfeeds.
Tips For Trading FX On News Release
1. Go For Highly Liquid FX Currency Pairs. When trading news, it’s a good idea to stick to the major trading pairs. Not only will these be more liquid, but cheaper too – news traders often sneak in and out at the speed of light, and need access to the lowest possible pip spreads. Major currency pairs such as EUR/USD will be the cheapest to trade, and will also have the largest share of news feeds.
2. Organize Yourself. News feeds cause short term chaos in the markets. As a news trader, you need to be highly organized to take advantage of this price chaos when it hits your charts. This means knowing which news feeds are scheduled for the day, and at what time they are due to be released. This information is freely available on various sites on the internet.
3. Know The Key Types Of Data That Will Shake Up The FX Price. Different news feeds have a different level of impact on the price of a currency pair. When you trade FX news, you must be alert as to which economic reports are likely to make the biggest price impact and create a trading strategy accordingly. Just as a loose guide, FX price action can be especially sensitive to the following types of information:
- Central bank announcements of any type
- Scheduled interest rates announcements
- Inflationary reports
- Employment levels within the economy
- Manufacturing and industrial data
- Sentiment on the economy as revealed within consumer and business surveys
- Trade deficit and surplus announcements
- Housing data
An organized news trader will be primed to act when any of the above types of news feed is scheduled to be hit.
4. Study The Past Effect That News Has Had On FX Price. No matter what type of FX strategy you employ, FX trading at the end of the day is all about understanding and identifying patterns that happen consistently throughout the FX timeline. By studying how different news feed announcements have impacted price in the past, a trader might get a better understanding of how it might do so in the future. This not only refers to price direction, but also how long any price impact lasts.
5. Trade Breakouts Instigated By News. One of the more reliable ways to trade news is to look for areas where price is consolidating ahead of the news, and then trade a clear breakout when the news hits.
6. Control Greed When Trading News. News trading can be extremely volatile and intensive. Sometimes price can act in a very polar way heading south one moment and north the next. As such it is a good idea to avoid being too greedy when trading the news. Set tight stops to prevent wide scale loss of equity, and sneak out once you attain a respectable profit.