Trading the news or News Trading is when you use the news on market-moving events to make trading decisions.
Because political and economic events affect a country’s currency, if you’re a news trader, you’re regularly keeping up to date on current events by watching the news, listening to speeches by major government officials, tracking new economic data to better analyse and predict where a country’s currency could potentially be heading.
Why Trade the News
The main reason to trade the news is to take advantage of market volatility. Economic data like GDP, inflation, and employment numbers all have a particular influence on the movement of currencies.
There is volatility generated around these events and the possibility for increased volatility under certain conditions, like for example if the data released during the event is in stark contrast to what was expected by the market.
Finding News Events That Produce Volatility
The forex market is prone to short-term periods of volatility when economic data from the US and around the world is released as scheduled, so it’s important for news traders to know which news releases are important and when they’re scheduled for.
You can get all that information using an economic calendar.
In some instances, there can be over a hundred scheduled events in one week ranging from economic indicators to monetary policy decisions.
To find the right events for you, filter through your economic calendar by interest rates, economic growth, inflation, and much more. Some economic calendars provide background information that helps explain the significance of each event.
A good forex broker will provide you with a free economic calendar, so if you want to start news trading, make sure your forex broker offers an economic calendar with your trading account.
Why You Need to Focus on News from the US
While economic news from all over the world affects the global forex market, news from the US has the most impact by far.
The US is still the world’s most powerful nation, economically, geopolitically, culturally, and technologically and it’s still the world’s biggest market mover.
While its position on the diplomatic and political front has eroded over the past few years, the USD’s influence as the global reserve currency is still unmatched globally.
Today, the USD makes up around 90% of all forex transactions, and that’s why news and information from the US is especially important to forex traders.
Three Key Ways to Trade the News
If you’re ready to trade the news, you can use one of 3 basic approaches.
Trading Before the Release – A trader can trade the news before it’s released. This is a great way to enter the market under low volatility conditions and trade within the trend before any news changes it.
Trading During the Release – A trader could choose to trade the news as it happens, an approach that requires a lot of commitment and focus. There is a lot of uncertainty when events are unfolding in the market and that, on the plus side creates a lot of market volatility. To succeed, you have to navigate that volatility with a clear strategy and the ability to make correct decisions quickly.
Trading After the Release – If you’re trading after the release, you’re trading the news after the market has had time to internalise the news. In most cases, price actions will provide clues on the market’s future direction. Data is more readily available and offers traders who can spot patterns and predict movements more opportunity to profit.