Trading The News Can Be One Of The Best Forex Strategies

Trading the news is arguably the purest way of trading the forex markets because after all it is the fundamentals of the economy that drives currency prices in the long run. So how can you actually generate profits from trading the economic data releases?

Well let me first of all explain why these news announcements are so important. If you look at intraday charts for the GBP/USD and EUR/USD charts on a daily basis you will notice that the price will often move significantly between around 8.30 and 10.30 US time. This is partly due to the markets opening at this time but is also largely due to important economic figures being released during this period.

These announcements, particularly the more significant ones, will often create large swings and big breakouts, which presents trading opportunities for the forex news trader. By anticipating the effect of these announcements you can enter a position straight away in the hope that the markets will react as expected. Alternatively you can wait for the markets to settle before entering a position. This is often a better way of trading because you don't have to contend with widening spreads which often happens immediately after a big data release.

The more important data releases such as interest rate statements and non-farm payrolls can create big swings in volatility. Sometimes you will also see huge breakouts lasting several hours or even days as a result of an a data release. It's not always easy to predict how far a currency will move on any news, but technical analysis is often a useful tool for spotting potential breakouts. For example, if you use hourly candlesticks and you see several consecutive small candles leading up to an announcement followed by a much larger green candle after an announcement, it may be a good strategy to go long after the candle has closed.

Conversely you can also use technical analysis to help you determine if the market has overreacted to a particular announcement. For example sometimes you can see swings of 100-200 points after a big announcement, but very often it will reverse back soon afterwards, so there are often good opportunities to trade against any big price moves if you think the price has overreacted and moved too much too soon.

Trading the news is certainly not easy and not many people become truly wealthy through forex news trading, but there are certainly some excellent trading opportunities to be had whenever there are some important market-moving economic data releases scheduled.