You simply cannot bypass the influence news has on the forex market. Doing that will make you think your technically based trading system is flawed at one point in time.
Before you think of trading the forex market, you have to know what moves the market. There is only one answer to that. The news! No matter how good your trading system is, disregarding global news will make you baffled at some unexpected market moves.
Why trade the News
Important news makes the market move because traders will react on release of the news. You will be better prepared if you are on the right side of the move.
Cons of News trading
All strategies definitely have their fall backs and so does news trading.
-Most markets move faster after the release of relevant news, brokers increase their bid-ask spreads during these periods.
-Slippage is a high probability during the release of relevant news. It occurs when due to the fast movement of the market when you fill an order you may be filled with a different price.
Big market moves are subject to whipsaws. There is usually a high risk of a good whipsaw before market participants eventually agree on which direction is the best to go relative to the particular occurrence.
It can lead to profits but it is difficult to implement. You need to have a good grasp of Economics and know how certain variables react when certain things happen. And this is simply NOT easy.
Which News is important
Trading the news is difficult not only because you need to have an understanding of economics but because there are so many news releases per day and if you were to act on most of them you definitely will get confused. Below we look at the trade-worthy news reports.
The US is the most important player in the market and you should follow for a start only news from the US
-US inflation and central bank news are so important and play a big role in the forex market.
Information such as wars, natural disasters move the market significantly but not as much as central bank information.
Follow major stock market motions too. Check out Dukascopy forex broker as they are known to be able to maintain decent spread even in the course of news releases.
It is important to note that when trading the news you should trade only the liquid pairs as they are the pairs affected hugely and directly by Fundamental analysis. Go to swing trading system to see the tested trading strategy that works.
These pairs are but not limited to: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD.
As a conclusion take note of the following points:
When you have a directional bias, you are expecting price to move a certain direction, and you’ve got your orders in already. It is always good to understand the underlying reasons why the market moves in a certain direction when news is released. When trading using non-directional bias you are not bothered about where the price will go but are always ready to follow the market. Don’t be swindled on forex by going to is forex a scam and discover the reasons why forex trading isn’t a scam.
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Posted under Currency Trading
This post was written by admin on February 10, 2012
