Trading Forex on the news
Forex news trading is one of the most popular trading strategies on the currency market. Its peculiarity is that fundamental analysis is used as a basis for making decisions about entering into transactions. The simplest version of news trading involves concluding deals prior to the release of important economic news.
Is trading the news the life of risky traders?
It would be wrong to consider forex trading on the news as a separate trading strategy, because this group of strategies, despite the common "ideological platform" can be quite different from each other. The main thing a trader who wants to check his theoretical knowledge about trading on the news should pay attention to is ambiguity of trading signals coming from fundamental analysis indicators.
Technical indicators also produce false positives, but everything is much more complicated in "news trading".
Firstly, not all currency pairs are affected by macroeconomic indicators. Yes, the change of interest rates will have an effect on a currency rate, but if it is going to be, for example, the Australian dollar, then when forecasting its value it will be necessary to keep a close eye on the situation on the world gold market, irrespective of any events in the Australian economy. The commodity currencies of which the 'osie' is representative are not as macro-economically exposed as the high-tech currencies (USD, EUR, JPY, GBP and others).
But that is not all, the same news can have different influence on one and the same trading instrument. This means that a trader has to consider a large number of factors, not all of which can be interpreted unambiguously.
Peculiarities of the fundamental analysis in trading on the news
The classical procedure of market forecasting using fundamental analysis tools includes the following steps:
- Analysis of political and economic situation; - Forecasting of the contents of the coming news and options of market reaction to this news; - calculation of expectations of direct competitors; - Calculation of possible variants of their behavior.
For the vast majority of speculators this approach to predicting trades seems too complicated, so in short-term trading the release of important news signals the start of a "drive".
While waiting for the news, without bothering with analytical calculations traders place differently directed orders. Such "news strategy" also has the right to live, but there is one peculiarity of this method - before the news releases the instrument price moves in a narrow corridor, but there is a high probability that after the pending order triggers the price will move in the opposite direction, easily breaking through the corridor walls. This "phenomenon" is explained simply - the traders who placed orders in the "opposite direction" have triggered stop-losses.