In the forex market, news and reports are usually the cause of major movements. Due to this, it’s no surprise that some traders wait for the release of high impact news to benefit from big market moves. Nonetheless, if you lack the necessary skills and strategies of trading news successfully, you should stay away from the market at those times.
Here is a work plan to assist you earn some pips from news trading.
Why market moves during news
Before and after major news has been released, the forex market usually experiences much movement. This is caused by the many number of traders who enter and exit positions during such times. Because these traders want to execute their orders are prices they deem best, this often results in massive movements during the release of significant economic news.
Now, trading forex news seems to be lucrative. However, you must be careful because the high activity in the market during such times can cause detrimental harm to your trading account. As such, you need to be prepared ahead of time to reap maximum rewards from the big market moves.
How to identify major market news
Importantly, you should know when the big news announcements are going to be released and program yourself accordingly. There are several online news sites and various online tools you can use to assist you in knowing when a high impact news is about to come out. And, they are usually differentiated as High Impact.
The major market news are those which historically have caused forex prices to fluctuate greatly. Examples include the Non-farm Payroll Report, Federal Reserve Minutes or the European Central Bank Rate Decision.
You should keep yourself updated on the happenings in the market so that you cannot miss the major announcements.
It is worth mentioning that all economic announcements do not cause equal movements in the market. So, knowing the differences will enable you concentrate only on the important ones.
Trading the news
Before any market news is released, there is usually what the expectations for the values are. The expectations are essential since the market has possibly banked in the expectations. As such, if the actual figures of the released announcements are exactly the same as the expectations, the market would not experience much movement. On the other hand, if the economic announcements are far above or below the expectations, then the market is likely to experience much movement. Therefore, you should be prepared to enter the market if this trading style resonates well with your personality.
Regardless of whether you have a long-term or short-term strategy, you should know how the actual announcement is the same or outside the expectations. If the announcement is released according to expectations, then your approach to the market should not be the same as when it is outside expectations.
How to trade when release is according to expectations
Even if the announcement is according to expectations, it is still likely that the market will experience some fluctuations. To take advantage of such moves, you can plot support and resistance levels, chart patterns or trend lines on the charts and use them to identify trade opportunities. If price reaches the significant levels and hold, you can open a position and put your stop loss levels accordingly. On the other hand, if a break out occurs past the key chart levels, you can also enter a position and ride the profits.
It’s important to note that you should not place a news trade immediately the announcement has been made. Keep off for some minutes to allow the market to settle and clear moves to develop before plunging in the market.
How to trade when release is outside expectations
If the numbers are way above or below the expectations, the market is likely to experience big moves. In such situations, you can locate breakout levels to enter sell or buy orders.
If there is a clear trend line break after news release, you have an opportunity to enter a trade. In most cases, a clear trend line break will occur only on high volatility situations caused by news way above or below the expectations. If you enter such a trade, you can place a stop loss above the trend line to protect you in case the trend resumes.