Forex news straddle strategy forex
What Is Forex News Trading? As we mentioned before, an exchange rate is primarily determined by macroeconomic fundamentals , such as domestic and foreign money supplies, real incomes, interest rates, price levels and the balance of international payments. Basically, foreign exchange rates are derived from long-term economic fundamentals, these variables measuring the value of one currency against another.
Some macro-factors can determine the very long term trends we see in weekly and monthly charts, while in the medium term, governmental monetary policies and corporate treasury activity are the main factors influencing the currencies. News trading is a method designed to take advantage of market volatility during news events. Most traders follow an economic calendar , which provides useful information on upcoming macroeconomic events, pre-scheduled news announcements and government reports on economic indicators that have influence over the financial markets.
As the market reactions to an important economic event are very fast and volatile, most traders find it useful to know the time of such upcoming events and adapt their trading strategies accordingly. Factors To Consider When Trading The News On Forex The Element of Surprise the figure for the previous month the forecast for the current month the actual release figure Depending on the difference between the actual release and the forecast number, we can witness some spectacular moves in a short period of time.
Price Volatility Volatility measures the risk of the currency. If the prices of an exchange rate fluctuate rapidly in a short term, it is considered to have high volatility. If the prices of an exchange rate move slowly in a longer term , it is termed to have low volatility. Trading opportunities with a high price volatility can mean higher returns, meaning a trader can make more money faster.
However, the higher the volatility, the riskier the investment tends to be. High-Quality Broker If you trade with a poor broker, it is very likely that they will not allow you to make short-term profits from trading on news. Most used dirty practices to stop traders from trading the news include: Stop-loss hunting and spread widening : If the market price is close to your stop-loss, the traders could witness an increase in the spread for a couple of points, and that will cause the stop-loss activation Slippage: when a trader gets a different price than expected on an entry or exit from a trade.
In order to be successful while trading on news, a high-quality broker must offer instant execution, because news trades happen fast, so your execution needs to be done at a very high speed. Mental aspect The psychological aspect of news trading is extremely important as the traders must process all variables, interpret the released figures and put their plan into action, instantly. Traders must understand the data, must be capable of making those decisions and manage their emotions.
In a summary, their responsiveness must be on point. An economic calendar is a very important tool for any news trader, as its strategy is based on smaller a time frame. I prefer to use the economic calendar on the Forex Factory website. Here is what you should do: At the start of each trading day, you must verify the economic calendar for the most important releases of economic indicators.
If you have a trade previously opened, you should monitor it closely and analyze the figures of the released economic indicator, in order to see if the fundamental news are in line with your technical analysis High Impact Economic Indicators To Trade Economic indicators play an important role in the financial markets. When you are trading the news, you must evaluate the potential effect an economic indicator can have on a particular market. Other economic indicators are able to move the markets quite seriously.
Here are the main economic indicators you should pay attention to news trading: Gross Domestic Product GDP Gross Domestic Product measures the dollar value of all goods and services produced within a country. Yes, I want to receive emails with explanations regarding the tool and the newsletter. Message First of all, you have to know when the high impact news is scheduled. Prior to the news release, you have to find the potential price range for the last 5 bars.
The preferred chart for this method is the 5 minute time frame. Place a buy stop order 5 pips above the high of the last 5 bars. The sell stop orders will be placed 5 pips below the low of the 5 bars. Note that the length of each bar must be above 15 pips in order to consider it as a potential news trading zone.
If the buy stop gets triggered, you have to look at the value of the ATR.
Major finance news around the world can fundamentally impact the value of currency pairs.
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