August 02nd 2021 Education

A Guide to Apply News Trading in Forex

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When trading forex, one has to be attentive to things like the market price fluctuations. But have you ever wondered what causes these fluctuations at all?

Technical analysis can help you with trading considerably and keep you aware of the changes required to curb losses and maximise profits. But if a trader has no idea about what to expect then things could get messy. News is what makes the forex market move most of the time. This seemingly invisible force influences the market directly and in this guide, we shall discuss everything forex traders need to know about applying news.

All experienced Forex traders keep an eye on world market news to know what to expect from their preferred currency pairs. Irrespective of whether it is positive or negative, news affects our trading decisions. Even in the stock market, it is common knowledge to stay on top of news daily to make the right decision about any certain company’s shares that traders own.

Some of the major news releases that affect the economic situations all over the globe bring volatility in the forex markets, which if not handled correctly, could turn out to be a disadvantage to many traders who miss out on buying/selling any particular FX pair. Unlike stock trading, where people who act before a major news release occur are accused of “Insider Trading”, in forex trading, acting on a news release as early as you can is considered “fair.”

Why Trade Apply in Forex?

Applying news is like using knowledge regarding a particular market condition that could affect the economic situation. Experts recommend paying attention to new market news releases, collecting major economic data, speeches of influential government officials, and some geopolitical events. If a trader successfully picks up breaking news that could influence either a part or the entirety of the forex market, he/she can look for the correct opportunity and make trading decisions on that news.

Few Considerations When Trading the News:

  1. Spreads are supposed to widen during any major market event right when a piece of influential news breaks. But this causes many forex traders to lose their money if they do not have sufficient margin available to counter the widened spreads.

  2. Forex traders need to prepare themselves before they trade major news releases. Because most of the time, due to inexperience, they decide in split seconds only to suffer losses in the upcoming trades. It is better to wait, prepare, and develop a strategy before a news release.

  3. As mentioned earlier, trading the news allows traders to benefit from the volatility factor of the currency market. In case of any important news releases, people should focus on protecting their assets from market downsizes by reducing trade sizes.

Now that we have discussed the importance of trading news releases, let us dive into the details of types of major news to apply in the case of forex trading:

The most important thing about applying news to trade forex is knowing which news events are worth following and which ones are not. Below are some considerations for picking up worthy news:

  • Professionals who have experience tend to focus on occurrences that affect major currencies in the market like USD, EUR, GBC, etc.
  • Since the purpose of trading news is to utilise the increasing volatility of the forex market to your benefit, only the type of news release that is capable of moving the currency market is chosen.

Examples of different types of market-moving news are:

  • Economic data release
  • Changes in government policies
  • Central bank policy changes
  • Tweets of multibillionaire business tycoons.

Tip: Always make sure that you stay away from the wrong side of the market and stay aware of the upcoming key event risks.

It is also important to note that some market news has relative importance that changes once a certain event is over. For example, when interest rates are changed they hold some significance for a while and after that market, a correction occurs when it loses its importance. Finding the right kind of influential news can be tricky for someone who has no idea what and where to look for it. But an economic calendar (either free or paid) can be of help to obtain market-moving news like:

  • Industrial production
  • Retail sales
  • Trade balance
  • Interest rate decisions taken by the central banks
  • Useful surveys to check business sentiments

Tip: Pay special attention to what is trending in the world in different countries. Most specialists will tell you to consider American market news as a priority because it is a financial superpower and most currency pairs are influenced by the value each U.S. dollar holds.

Techniques of Trading the News in Forex

Following are a few approaches to use in forex trading by applying news.

  • Trading after news release

The post-release currency market is open for traders willing to enter the trade once the market has settled down with the news release. Price action that you see in a “post-news release” market contains some clues about the future price direction and thus has a considerable amount of opportunity.

  • Trading before a news release

This is the ideal scenario for all forex traders who are interested in picking a major news release before it breaks and affects the general trading conditions. The reason why many traders would rush to follow this particular approach is that it serves as a considerably risk-free technique to trade the news when the market is quiet. Traders entering the forex market before the news release get ample time to assess and re-assess their positions.

  • Trading amid news release

As the name suggests, this is probably the most uncertain time to trade for both beginner and professional level forex traders. When a piece of certain influential news breaks, the market immediately follows a certain trend and becomes extremely volatile. If you do not have a clear strategy and proper risk management in place, you could end up losing a substantial amount just by being on the wrong side of the news.