Be careful trading the news in forex markets

Be careful trading the news in forex markets

Trading the news an essential skill for all traders. Major news announcements can oftentimes cause big price movements – particularly in forex markets. So here are five key pointers to help you try and make the most of those moves.

Do your research:

know the times and dates of important events. Use an economic calendar, for example, the one on www.tradingview.com It’s a vital tool to help you plan ahead. There are many announcements in any given day.  So it’s essential you know which will affect the assets you’re trading. If a forex trader – generally any event impacting the dollar is important: non-farm payrolls, Federal Reserve minutes, GDP. If trading shares lookout for company earnings, dividend payments, and stock splits.

Know the expectations :

Then, check what the market expectations are for the event. Look at a chart of what happened last time. How did the market react? Was the data better or worse than expected? Did earnings beat or miss estimates? Use what happened in the past to inform your future trades.

Related events :

Study-related news and events. What else could impact the market in the wake of the announcement? Take crude oil. Inventories are due on Wednesday. If there’s an oversupply, the price should drop. But, say OPEC ministers are meeting Thursday. If they reduce output the price had a very high probability to rise. So it’s essential to look at the overall picture, and not take each event in isolation.

Put a strategy in place :

Know what levels you want to buy or sell at, and where to put your stop losses. This will help you to have the courage of your convictions and avoid knee jerk reactions. 

Learn when to fade the news

For example – the CEO of ‘Company X’ announces he’s leaving. The stock falls – but you believe the company’s fundamentals are still sound and the market is over-reacting – so you buy. If you’re right and the price rises, you would have got in at the perfect time. Of course, if you’re wrong and the price continues to drop – you’d make a loss.

Finally, remember these are all just guidelines. While trading the news can be exciting, it is also risky. Unexpected results can lead to high volatility in the markets. So make sure you’re well prepared and always have a solid trading plan and very good strategies to protecting your portfolio.