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asiaforexmentor

How Do You Trade the News in Forex Trading?

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How do you trade the news in forex trading?

 

news.jpg

 

 

A lot of people have been asking on how to trade the news.

although i strongly do not recommend just trading based on news only, but here’s some pointer.

1. News are categorised into the level of impact. low, medium, high

just like the word high, high impact news can change the trend of the market. changing a downtrend into an uptrend and vice versa.

some medium impact news do have such capability too.

2. watch out for the upcoming important news weekly and daily.

and note which pair will the news affect.

3. if you are in a position and there will be an upcoming high impact news in 2hrs time.

take either half your profits first as the market will start going frenzy usually 2hrs before the news. shift your stoploss to breakeven. this way, if you are going long and the news impact reversed the market, you still got half your profits and broke even on the other half.

4. if you are not already in position before the news. wait for 10 mins after the news is out before entering. as in the first 10 mins, you will see price go spiking around and it happens alot of time when once the news is out, price goes spiking up real fast. you will be there thinking if you don’t catch the boat now, you are going to miss a hell lots of pips. and when you got in at the high, price went spiking even faster downwards. what the..?!

did this happen before to you? Don’t worry,it happens to every one.

this is how the market works.

one reason is that when the news is out, major players throw in a sum of money enough to move the market up. when people sees the market moving up, they jump in to push it even higher as they went in with the ‘fake’ movement. the major players then wait for price to go up high enough and then they step in to throw in large influx of money to short it. gaining great amount of pips in a short period of time. i know this happens, and it happens a lot of times.

the other reason is that, the market is based on sentiments. even though the news is positive, and people start buying it long. making the market move up. but if the general market feel that the news is not as good as expected or for some other reason. the big players and professional traders will start shorting it. leaving the losses to those who just traded on positive news.

therefore, one way to go around it is to wait for 10 mins after the news is out to evaluate the REAL market movement before entering.

but as always, i highly recommend adding price action confirmation to it. then you have a high probability winner.

i hope this article helps and leave me a comment to let me know how you feel or any additional input you would like to add are welcome.

Ezekiel Chew

Asia #1 Forex Mentor

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If by 'news', you mean 'economic indicator releases', it's tough to get on the initial move because the headline number is transmitted electronically and there are algos out there that have pre-programmed parameters to take a position.

 

Better to take a look at the details behind the headline number to see if the mkt is going to follow through the initial move or re-trace because the details aren't as bearish/bullish as the headline suggested.:2c:

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How to know that a particular news will have low, medium or high impact (In the case of beginner)?

 

Good question. In all honesty, it changes over time depending on what the markets (and policymakers) are focused on. Before the bottom fell out of the US housing market, housing numbers wouldn't move the financial markets at all -- yet one housing went into freefall, it became high impact.

 

Having said that, some news releases consistently have high impact (like the 'Labor Market Report' otherwise known as non-farm payrolls). Web sites that show news releases (am I allowed to name any to give examples?) forexfactory, briefing, bigswingingforexking, etc. use a color coding system to give users a general idea red being highest-impact, etc.

 

The best way is to watch how the markets react to each over a few months and listen to policymakers comments. But, to start off, the color coding system used on these sites are a decent start.

 

Hope that helps...

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Thanks pimpin_pips for your reply. It is really helpful for me.

 

No problem. I use both fundamentals and technicals when putting on a trade. But, unlike many people in the forum, I use fundamentals for the 'what' and technicals for the 'when' (entry/exit point & timing).

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I am actually against trading during important news. The markets get extreme volatile, spreads are getting wide and the momentum is changes several time within few minutes. In fact, from my point of view it is pure gambling and If you don't have clear risk management method you won't survive in the markets. What I do like to do is to wait until the markets choose clear direction after the news and then trade according the momentum.

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No issue. I use both basic principles and technicals when placing on a business. But, as opposed to many individuals in the community, I use basic principles for the 'what' and technicals for the 'when

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In Forex trade you can sell and buy currencies 24/7 hours in a day. So it is not possible to track the market updates all the time, hence we can sell our latest news and updates to other traders.

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:helloooo: I don't trade news but i do read it.

I read one news report that tells me everything that happen during the yesterdays trading session and whats happening today.

At the beginning of your trading news doesn't really matter until you get good. At the beginning it will just add more stimulus for your brain to interpret and you will just get analysis paralysis.

The news i read allows to be in sync with the market more easily.

I generally follow Bloomberg- http://www.bloomberg.com/and Forex News - FX-Insights: Leading Daily Forex News and forex trading strategies blog for latest forex news and then take decision about trading the news.

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Basically, you can learn how to trade stocks when you actually try doing it. Open a practice account of a forex trading simulator with ( Deleted ). It's easy to understand and use for those who want to try currency trading.

Edited by Mysticforex

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Basically, you can learn how to trade stocks when you actually try doing it.

Open a practice account of a forex trading simulator with .

It's easy to understand and use for those who want to try currency

trading.

In fact there are many brokers out there with demo/simulators ... why

 

You seem to have an intent to promote this company ... are you connected

with management/broker etc? Both of your posts on Traders Laboratory

mention this broker. Why is that?

 

Trading the news is a specialist activity - to be advising any trader to use a

practice account is commendable.

 

To be advising any trader to avoid news announcements altogether, would be

wiser. It is possible to wait until the initial inertia begins to subside, usually

after the first 10 to 15 minutes (but who knows?) and then look to enter on

the retracement.

 

But for anyone to read what I have just written and understand why/why not

and what the other thousand factors are that govern news trading, is

impossible and perhaps a little foolhardy.

 

Isn't is better to simply sit it out?

 

News trading is for experienced traders and gamblers.

Edited by Mysticforex

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Has anyone been "bracketing" the news? Meaning have both long and short orders ready before news announcement is released, then once it's release, one order will be filled and the other will cancel out (OCO)? Of course there are techniques to correct the trade if it whips saws around? Never tried this, but just curious if anyone has been successful with it.

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Has anyone been "bracketing" the news? Meaning have both long and short orders ready before news announcement is released, then once it's release, one order will be filled and the other will cancel out (OCO)? Of course there are techniques to correct the trade if it whips saws around? Never tried this, but just curious if anyone has been successful with it.

 

It is possible to get killed on both sides.

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News... I personally like most news releases. If you go back and look at prices in FX intraday, you find many of the intraday trends begin near news releases. Furthermore, avoiding news is tough as there are so many releases.

 

For my money, i trade most news events. I skip FOMC and NFP usually, may trade the after math.

 

Success in using news for me involves trading the market's reaction to the release, having a reliable indication of direction prior to or concurrent with the price action around the release, and using multiple timeframes to get better Reward to Risk. Works for me.

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Often, habitual traders first trade and then analyze. Last month the big NFP number was caused by an addition of part time as well as second jobs. Full time jobs were reduced, but that did not stop an initial bullish response to the number. When using leverage to trade forex, it always best to analyze and trade with a plan.

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In my opinion, My trading method all depends on the technical analysis. But to prevent from bad enteries i also have an eye on news. But analyzing news is little bit tough for me. Now i will apply the points mentioned in this article and check the results. Thanks

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In my opinion, trading in the Forex market based on the news is comparatively tough compared to equity market trading. Traders prefer to trade based on charts in Forex markets.

With the help of economic data (inflation, Import export data, FII Inflows and outflows etc), we can take a long term call.

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Guys , according to my observation you need to see if the news are :

- high impact

- middle impact

- low impact

 

If high impact and really important like NFP, suggest you to wait in 5 minutes or 1 minutes chart since this is the big move can be seen most clearly.

 

if the middle or low impact, I think wont move the market so fast you can use M30, H1 to watch it.

 

 

Hope that's help.

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Guys , according to my observation you need to see if the news are :

 

Hope that's help.

 

But sometimes it really difficult to take a call regarding the impact of the news whether its a high impact, middle impact or low impact ?

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I choose not to trade news because I don't see any edge in it. There are a lot of traders out there with an information and latency edge (miles ahead of any retail trader), why would they leave any profitable risk on the table after a news release? Sure news is a source of volatility, but honestly do you think that you can manually analyze and trade the news before all the HFT desks and banks?

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I do you think that you can manually analyze and trade the news before all the HFT desks and banks?

 

Trading based on news is known as Event based trading. Event based trading studies involve the analysis of security price behavior around the time of an event. Event studies attempt to measure abnormal changes in stock price of publicly traded company when some new information about the respective company comes to the market. The new information that is often of interest is the market perception of which companies will be the winners and which will be the losers following the introduction of new information. The event study method is based on the assumption that capital markets are efficient such as to estimate the impact of new information on anticipated future profits of the firms. If information communicated to the market contains any useful and surprising content an abnormal return will occur. In a capital market with semi-strong efficiency one can assess the impact of the event in question on the market value of the company by calculating the abnormal return (MacKinlay` 1997). An event study aims to measure the direction and magnitude of the impact, an event would have on value based on its effect on the company’s stock price when the event is announced after accounting for systematic risk.

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Event based trading studies involve the analysis of security price behavior around the time of an event. Event studies attempt to measure abnormal changes in stock price of publicly traded company when some new information about the respective company comes to the market.

 

I agree that studying the introduction of information and the impact following the intro is a great method to give insight as to how prices will move in the future, it still doesn't solve the problem of implementation. When information hits the market the race is on to trade before price moves to an unprofitable level, and in this day and age you are competing with firms who have access to the fastest execution. Also what if the largest potential buyers or sellers make an incorrect analysis? Their irrational opinion will still be reflected (probably for a very limited time) in prices if they choose the execute on their opinion. If I were to incorporate news into my strategies it would be more of a trend confirmation/denial tool rather than a directional signal.

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..in this day and age you are competing with firms who have access to the fastest execution. Also what if the largest potential buyers or sellers make an incorrect analysis? Their irrational opinion will still be reflected (probably for a very limited time) in prices if they choose the execute on their opinion. If I were to incorporate news into my strategies it would be more of a trend confirmation/denial tool rather than a directional signal.

 

Fastest execution... yes that matters especially in equities. not nearly as much in more liquid fx access. Automation helps, automating in C++ on Linux even better.. give yourself an edge. You may not be colocated - i don't think anyone in FX is! its OTC

 

If the biggest players reverse on you, then the market could fake you out. It can happen. What is important is the bottom line after 100+ trades. One fake out, provided you don't lose too much, is normal every so often.

 

I'm confused - isn't trend confirmation basically the same as directional signal? You have two preferably uncorrelated tools telling you "bearish", then you call one 'signal' and one 'confirmation' ... eh. News would be to tell you when to pay attention to your trend/direction tools. Time can be a very important component.

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