Forex Methods: How To Trade The News

Forex Methods:  How To Trade The News

If you are looking to get started in the forex markets, you will need a way to turn the probabilities into your favor and give yourself an edge on the market.  If you do not do this, you are essentially flipping a coin — or worse.  This ultimately means that you could suffer significant losses in a relatively short period of time.  

Fortunately, there are strategies that have been tested over time that allow traders to gain an edge on the market.  One excellent resource in these types of areas if FiboGroup, which has extensive analysis on the subject.  Here, we will look at some of the factors involved when forex traders base their daily decisions on news events.

Economic Reports

The first part of the process when trading the news is to get yourself an economic calendar.  This will tell you when the economic data is released in all areas of the world.  If there is a particularly important news event scheduled in the day, you can likely expect some increased volatility in the assets that are most directly tied to the strength or weakness in the underlying economy.  

In forex trading, this would mean that a Canadian GDP release would probably most greatly impact the Canadian Dollar.  This volatility could then be viewed using forex pairs like the USD/CAD or the CAD/JPY.  So if you are looking to define your trading positions for the day, it is often a good idea to see which assets are most likely to be impacted by whatever economic releases are expected during that day.

Financial News Events

The other side of news trading is less predictable, and this occurs when a major news story influences the market.  So for example if we see that a massive tsunami hits Japan or a large multinational corporation declares bankruptcy in another country, then there will likely be enhanced price volatility in the market for at least that single session.  

This is another type of event that can be used to structure an active position in the market.  So consider these approaches when you are looking to define your strategy in the forex market.


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About the Author
Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. Trade ideas are generally suggestive of time horizons of one to six months.

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