Recently, there are a few emails asking me how do we trade news when we do not even know what’s the outcome of the news releases/fundamental reports. It’s not only just that, how are we going to handle different sources of potentially high impact news and reports that are going to hit the forex market. So below I’m going to share on how to handle those in forex trading.
I understand how frustrating it can be when there a constant stream of data/fundamental reports that is releasing every now and then, and it may hinder your decisions for your trading. Forex traders seemingly have loads of stuffs to keep track before executing their trades like countries’ economic data, who is going to speak that will affect the market etc.
Well, I’m going to give you an example here. A stock trader only has to worry about the earnings reports of a certain company, but whereas retail sales reports may be useless to them. For a forex trader, he has to worry much about interest rate change, employment and unemployment figures and some other stuffs but do not really have to worry on what the president of European Central Bank (ECB) have to say. It is possible to narrow down on the items that will have an impact on the forex market that you trade because you can choose the calendar events that that you need to focus on for a certain currency pair. You can refer to a very popular news calendar in forexfactory.com. If you are trading USD pairs, then you should look out for any orange or red coded USD news as it will affect your trade. Below are the 3 ways to approach news events.
1) Predict ahead of the news releases, speech etc. and get into position.
No one can predict where the forex market can go and what the news releases may be. So this is definitely gambling to me and I’ll never recommend this to anyone if you want to trade forex the right way.
2) Avoid the news event by waiting and not trading.
This is the best forex strategy for me when I’m a short term trader. When there is a news events coming up, I will not trade 2 to 3 hours before the news are released, this is to keep me out from unexpected results and choppy markets. Sometimes the market will be very volatile and it can only be challenging but NOT profitable for most traders. So it’s better we stay out of the unpredictable and see how the market moves after that.
3) Trading in a timeframe where intraday swings do not have much impact.
This applies to traders who are not using intraday as their strategy. Instead, they are using short swings and long swings as their trading strategy. The approach here is that when you use swing trading strategy, you will have larger stop loss and these kind of intraday swings are just small fluctuations. But of course, you have to be able to take huge stop loss and your forex trading system must be proven to be able to take in these small swings. If your system can do that, it means the news releases are already factored into your trading system.
