Forex news trading is speculating on how the market will respond to the announcement of major news stories or the release of market data. Whenever major news is released, the market will invariably respond. The question is whether the market will rise or decline based on the news. Many traders will trade based on their belief on how the market will respond. There is only one question that can be asked about news trading. Does Forex news trading really work?
Most markets will have slight movement preceding the announcement of major news events that are regularly scheduled. These events might be the release of market indicators or unemployment numbers. This is because there will be rumors about what the actual numbers to be released will be like. Traders will then place a position based on how they feel the market will respond if these rumors are true.
The Forex market place is open for trading 24 hours a day. Any news announcement in any country during the day or night will immediately have an impact on the currency market. Usually the market will have a slight change just prior to the news announcement and then the market will have a greater change after the news announcement.
With Forex news trading a trader is basically trying to speculate on the impact of the news announcement. There is no question that major news announcements can have a profound impact on the Forex market place. This is why most Forex traders will try to capitalize on the release of major news announcements.
The contrary point news trading is that most investors already follow this strategy. Since there is a wide number of traders investing based off the news, the market is quick in responding to the change from the announcements. This quick change in the market limits the ability for traders to profit from the news announcements. For this reason many people do not think Forex news trading is a plausible strategy.
Unlike other trading strategies, Forex news trading does not require any technical analysis of the market. Since most news announcement happen very rarely there is no technical analysis model that will be able to account for the introduction of the news. This allows a trader to use objective reasoning in order to determine how to place their trades immediately before and immediately after the announcement of major news.
Most news announcements have a short term impact on the Forex market place. Very few news announcements will have a long term impact on the market. With the new announcement having such a short term impact, traders will look to quickly move in and out of positions. The impact of the news may be felt for only a day or sometimes less. You do not want to have a long term position if you trading based on news.
A good strategy to follow when Forex news trading is to place two orders on both ends of the current market price. If the market moves up then you can keep the order that profits from the move and cancel the other order that is below the current market price. This allows you to profit regardless of whether the market rises or declines.
Building a profitable forex trading strategy can be boiled down to two key factors – knowledge and testing.