How To Trade Forex Economic News Events
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Read below to find out how you can trade risk events on the economic calendar profitably:
In this video we’ll show you a strategy for trading news events on the Forex economic calendar that actually works.
Hi, It’s Arno here from Forex Source and before we begin, don’t forget to subscribe and follow us below so that you’re notified when we release a new video.
You’re probably aware of how much the market moves off breaking news.
To quickly illustrate the potential, you only need to remember what happened in 2016 after the UK voted for Brexit.
In reaction to that unexpected news, the price of the Pound fell over 10%, within 24 hours! Which was its biggest one-day collapse in history.
In fact, almost every predictable price move is driven by some kind of breaking news.
The problem for most retail traders is that it can seem volatile and confusing when it comes to actually trading these events.
But don’t worry, because we’re going to show you a very simple strategy for trading news events that is safe, reliable and consistent.
To have any chance of trading news successfully you first need to understand two very important principles.
The first of these is that the markets move based on expectations.
This means that the distance prices move is directly correlated with how ‘expected’ the breaking news was.
So, in simple terms, if everyone already expected the news, the price won’t move every much. And if no one expected it, then the price will move a lot.
The second principle you need to understand is that you must be tuned into the market at all times.
This means that you will understand what everyone is expecting and be able to quickly recognise when something unexpected happens.
This is vital for obvious reasons. If you’re not properly tuned in, then it’s likely that you will misinterpret news and trade it in the wrong way.
If you’ve ever tried to trade news off the calendar without being fully tuned into the expectations, you’ve no doubt, experienced how frustrating and confusing this can be.
You can get tuned into the market expectations by reading the vast array of analysis that is released regularly by banks, brokers and other trading institutions.
Ok, so now you know these principles it’s time to get into the strategies for making money from economic news releases.
The first strategy we’re going to show you is known as ‘trading into risk events’.
A risk event is anything that has the potential to cause traders to react.
An economic data release is a risk event. A central bank member speech is a risk event. A political election or vote is a risk event.
If it might move the financial markets, it qualifies as a risk event.
A risk event is also scheduled ahead of time. Everyone knows it’s happening.
Trading into risk events is a valid tactic. It relies on the market forming clear expectations ahead of the event.
Trading out of a risk event requires the correct circumstances too.
The expectations are compared to the prevailing sentiment of the market in the same manner. Instead of looking for them to match, they need to be opposite.
A good example of this was during the Brexit referendum we mentioned at the beginning of this guide. The GBP rallied into the event (everyone was positive on GBP and the outcome was positive too). The actual result was negative and changed overall sentiment at the same time.
This qualified it as a valid opportunity to trade out of the risk event.
Finally, we are going to look at how you can trade the news in a slightly less intense fashion. This means matching strong currencies with weak ones.
This will be useful if you are trading part time or around your main, fulltime job. Here’s how it works:
Every day, information is released from many sources.
This information incrementally changes the markets expectations. Big, unexpected shifts do not occur very often.
In the meantime, the best news trading tactic is too simply look for clear sentiment divergence amongst currencies.
These little strategies yield predictable moves that play out over and over again. Just remember to always be tuned into the market expectations.
And always, trade with the prevailing sentiment in mind. This is the real key to making money from trading economic calendar risk events.
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