Trading the News

Trading the news is becoming a popular technique to trade the forex markets … and why shouldn’t it be? Time and time again you see currency pairs move 50 to 100 pips within minutes or even seconds after a major news release. When you see that, I bet you’re thinking, “50 to 100 pips!? That’s easy money!” Maybe it is, and maybe it isn’t. It all depends on how prepared you are to trade a news release.
Why Trade the News?

Trading news releases can be a significant tool in your trading arsenal. If you want, it can be your only weapon altogether. Economic news reports often spur strong short-term moves in the market, which are great trading opportunities for breakout traders. And with the forex being open 24 hours a day and a true worldwide market, there are plenty of opportunities almost every trading day to catch market volatility (aka a lot of pips!) kicked off by an economic news report....

With all of these countries to choose from, there are easily five to ten economic news releases almost every day! Also, the great thing about focusing on news releases is that they are scheduled in advance, so you know exactly when you can schedule your trading hours.
You may be thinking that five to ten news releases per day may be a lot to keep up with, but you really do not have to pay attention to every single report – you can pick and choose. There are a few key reports, most of which come out every month, that produce a significant amount of pip movement.
For this lesson, we will focus on U.S. news and economic reports, mostly because the U.S. dollar is involved in a majority of currency trades, and therefore tends to have the most significant impact on the currency markets. Here is a list of some of the top U.S. market moving reports:

1. Employment Growth
2. Interest Rate decisions
3. Trade Balance
4. Gross Domestic Product
5. Retail Sales
6. Durable Goods
7. Inflation reports (Consumer Price Index and Producer Price Index)
8. Foreign Purchases report (TIC Data)

Every country has a set of major reports similar to this list and can be as potentially volatile. Again, since these reports are scheduled in advance there are plenty of websites on the Internet with schedules and potential volatility rankings.

Now that we know “how” and “when” you can trade news reports, there are a few key concepts you should know before placing your first news trade.

1. While the actual news number or report is essential to the long-term movement of a currency pair, in the short-term the difference between the market expectations and the actual release is what causes potential breakout opportunities. This means economic numbers and reports that come out as the market expected generally do not cause a strong market reaction.
2. The quieter the market is before a news release, the more the market is poised for a significant move. Think about it: In a quiet market, less and less traders are buying and selling, possibly waiting for some sort of catalyst (like a news report maybe?). When this “catalyst” takes place, all of these traders waiting on the sidelines jump in at the same time causing a huge move in the market. So, the more traders wait (the quieter the market), the more will jump in after a news report (huge pips and a new Ferrari, right?).
3. Depending on the significance of the economic report, and the amount of deviation of the actual to the forecasted number, news breakout opportunities are generally short-lived and may last for only a few minutes or even a few seconds. Trading news releases may be better suited for scalpers and day traders.

Straddles are really easy to set up and require very little thinking, but it is probably the riskiest method of trading the news. To set up a straddle, you basically put a limit order to go long a few pips above the market before a news report, and simultaneously put in a limit order to go short a few pips below the market. If the report creates enough volatility your orders will be automatically triggered, and your stops and profit levels will also be automatically executed if hit. Simple as that.
Again, it sounds easy, but be very cautious with this method in that both long and short orders can be triggered, and if profit targets and stops are set incorrectly, you can be stopped out for maximum loss on both orders. Also, you run the inherent risks of slippage.

This seems to be a more preferred method by many, in that you determine whether or not the news report is worth trading at all – a lot less risky than straddles.
First, you must determine the significance of the news report being released. Not every news report release is tradable; either it wouldn’t cause a stir in the market, or that the initial volatility would be so crazy that it would be too dangerous to enter a trade.
Ask yourself what kind of environment the market has been in recently. In other words, what has been affecting the market lately?
For example, maybe the Federal Reserve has been concerned with inflation. In this scenario, any inflation-related data (consumer price index, hints on future monetary policy) would be closely watched by the Fed – and what the Fed is watching, traders are watching. Any news reports of this level may be great opportunities to trade, as long as you are conscious of the risks.
The second step is to watch the news release and see if the report or economic number being released is inline with what the market is expecting. Obviously, if the report or number was a good one and/or a good surprise for a country, then you would go long its currency, and vice versa.
For example, in the next U.S. employment report, the market was expecting 200K new jobs, and the number came out at 300K. It’s a surprise to the upside, and more jobs signal strength and growth in the U.S. You would go long as soon as the report is released and hope to catch a portion of the move. If the report came in pretty much as expected, then there would be no trade.

I like the straddle idea. Couldn't imagine doing it without being right there to monitor it, definitely wouldn't go blind where I couldn't exit if needed. Good way to catch the first few pips, which could actually be many, and also any retrace that might occur within the first hour or so. I usually just trade the trends with good old fashioned charting worked in, to back up the indicators. Thanks for the info.

Brokers are wise to the news releases and whilst the demo accounts will always give a profit the reality is different.
Scalping, swing and trend trading are the most profitable ways of trading.
If it works, don't fix it!
Trade what you see and not what you hope.
G

The problem that I got caught in a while back was, the broker widening the spread at the news release for up to 5 mins. So if you have a straddle, you will need to make sure you are far enough away from the current price or you will be hit by the spread. I got burned a couple time too many and now I wait for the first wave of activity, then get in on a rebound around the FIB levels. But still a lot of good opportunities.

Pls Can Any In The Room Tell Me How To Use The News.how Do I Know The Currency Pair Assuming Euro Will Rise By 1.00 P.m As Indicated On The Calendar.

Subscribe to Felix's secretforexsociety.com and get the free signals.
Why would you want to trade the news now the brokers have blocked all avenues for making a profit?
If you want to make money trade trends, scalps or swings.
If you want to play at trading continue looking at the news releases.
G
Trade what you see and not what you hope.

Is straddling still profitable with brokers widening spreads , slipping orders etc?