Forex News Trading Strategies - Learn How That Works

Author: Consultant Finmaxfx

Most of the financial assets are driven by economic news, reports, data releases and other fundamental events. For example, changes in interest rates by major central banks influence sharp price action by appropriate currency pairs, crude oil inventories have an impact on the price of oil, U.S. Non-Farm Payrolls report boosts volatility in the greenback and so on. The figure of any report itself does not matter for profitable trading in the forex market. The only thing that matters is the market’s reaction as it could be sharp in case if the report does not come in line with analysts' expectations. Forex news trading strategy is a simple algorithm based on initial reaction on any fundamental event, developed to benefit on large volatility.

How to Trade Forex on News Releases?

The main tool for trading news is the economic calendar. The list of fundamental events, macroeconomic reports and crucial data allow traders to schedule a trading session, getting ready to act in case of a lucrative opportunity.

What is the best currency pair to trading the news?

Any currency pair, commodity or stock index is suitable for this trading system. However, most of the economic calendar is dedicated to developed countries. Thus the most suitable currency pairs are majors such as EUR/USD, GBP/USD, USD/CHF, USD/JPY, AUD/USD, NZD/USD and USD/CAD. Some of the cross-rates could also be considered for news trading strategy. For instance, the most liquid pairs such as EUR/GBP, EUR/JPY, GBP/JPY, AUD/CAD and NZD/CAD are in the short-list of assets. The only difference between them is the volatility, and traders should remember about general money management rules as well as an individual trading strategy when choosing a currency pair.

What is the best timeframe to trading the news?

Ultra-short timeframes are the most lucrative and informative for the forex news trading strategy such as 1- and 5- minutes. Some traders prefer using a longer timeframe of 15-minutes, however, things develop so fast that an immediate reaction is required. Therefore, a one-minute chart is the best one to trade news.

What technical indicators are needed to trade news?

No technical indicator is required as the analysis is made on a pure price chart.

How to use forex news trading strategy?

Traders should refresh the page of the economic calendar seconds after the scheduled time of the release. The economic calendar has also previous reading and expectations for the data announced. Thus, traders should compare the actual figure with the expectations and previous value in order to make predictions about the price direction. In addition, the price chart has to be monitored in terms of the initial markets’ reaction minutes after the news published. If the actual value is stronger than expected, then the appropriate currency pair would gain strength. In case of a weaker-than-expected reading, the underlying asset would decline.

If you like this strategy, you might also be interested in this Renko Charts Strategies

Looking for entry opportunities

Once the future price direction is determined, traders should wait for a price bounce in the opposite side as assets always move like waves even if the report was entirely different from expectations. Such a whipsaw or bounce has to be considered as an entry opportunity in case if the general direction is confirmed by next candlesticks. One minute forex trading strategy gives a chance to react quickly on things happening in the market.

Trading News Rules

One of the most valuable advantages of the forex news trading strategy is that it has manual control of the process. The thing is that markets are always different in terms of possible reaction to any particular fundamental event. Sometimes the market could go crazy after an unexpectedly strong or weak event, thus currency pairs could soar or plunge for hundreds of pips within minutes. It does not necessarily happen that often, but once a strong trend was caught, it would lead to a lucrative outcome. On the other hand, trading news involves higher-than-average risk due to the spike in volatility, and traders should have a certain experience in managing trading positions manually as the immediate reaction and decision is the key to success.

Below are two sets of trading rules for different scenarios based on one minute strategy.

When trading news, you first have to know which releases are actually expected that week. Second, it is key for you to know which data is important.

Conditions to buy (long) and asset

  1. A news release is stronger-than-expected for the headline currency;
  2. Initial market’s reaction is to buy the appropriate currency pair;
  3. After several candlesticks, the rate reverses and bounces down;
  4. The following candlestick is green again;
  5. The next 1-minute bar closes above the previous candle’s close rate;
  6. Open long positions.
forex news trading strategy

Conditions to sell (short) and asset

  • The data is weaker-than-expected for the headline currency;
  • Initial market’s reaction is to sell the appropriate currency pair;
  • After several candlesticks, the rate reverses and bounces back up;
  • The following candlestick is red again;
  • The next 1-minute bar closes below the previous candle’s close rate;
  • Open short positions.
forex news trading strategy

Setting take-profit and stop-loss orders when trading news forex

The distance of take-profit and stop-loss orders in pips depends on the underlying asset as different currency pairs have different trading volume, liquidity and volatility. For instance, EUR/USD is much slower than GBP/JPY, and orders should differ accordingly. As long as the trading system is based on minute forex news, targets should not be too high, while potential losses should come in line with the profit-loss ratio. For major currency pairs, a stop-loss for 15 pips from the entry point is affordable, the profit-loss ratio is better to set at around 3/1, and the take-profit order would have a distance of 45 pips. On the other hand, traders should also monitor additional factors such as pivot points, strong resistance and support levels, recent top and bottom of the market. Therefore, the take-profit and stop-loss orders could be adjusted, keeping in mind the requirement for the profit/loss ratio. For exotics and cross-rates, those values in pips should be enlarged as the volatility is traditionally higher for this type of financial instruments.

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