• Market Analysis Guide
  • Intro
  • Technical Analysis Guide
  • Bill William’s Chaos Theory
  • Japanese Candlesticks Theory
• Video Tutorials
  • Intro
  • Alpari Research: Technical Reports
  • What is Forex and How Does It Work?
  • Introduction to Charting
  • Introduction to Technical Analysis
  • Risks
  • Using Technical Indicators
  • Introduction to Fundamental Analysis
  • Gold and Silver
  • Money Management
  • Position Sizing
  • Understanding and Trading the News
  • Earning Interest in Forex
  • Introduction to Fibonacci Analysis
  • Economic Indicators
• Autochartist
  • Intro
  • Download Autochartist
  • Autochartist Tutorials
• Glossary

Understanding and Trading the News

The news in the forex is mostly related to economic events and announcements.  Aside from central bankers, there are very few “personalities” that can move the market very much.
 
Unlike the stock market, where each company represents its own micro-economy, currency prices reflect economy as a whole. Because forex news comes mostly from government and association sources, it can seem a little boring, and all the acronyms and dates are tough to keep straight.

Utilizing the news correctly can help with those issues and help you turn it into a productive tool you can use in your trading.

What are the "News?"

Economic news comes from several sources. You should understand the major releases and have a general idea what they are measuring or reporting. But what really gives a release meaning is its context—the expectations and trend surrounding the announcement and its affect on market prices.

For example, a release that misses or exceeds expectations causes volatility to increase, and not just in the short term. 
 
Similarly, the trend of the release compared to previous announcements will impact the market. If an economic fundamental is improving with each release, the trend is positive and may have a lifting affect on that currency. The opposite is also true.
 
So how do you find expectations and the trend of an announcement? Here are some resources?

Economic Calendars are available at no cost on the Alpari website. They typically outline basic information regarding upcoming and past news and economic announcements, and give some background on consensus expectations.

Don't get sucked into "Trading the News"

First, let’s clarify the difference between “trading the news” as a very short-term strategy and using the news to assist in forecasting prices and identifying opportunities on a longer-term basis.
 
A lot of traders talk about being able to “trade the news” but most often define that as a short-term position entered to take advantage of the volatility that sometimes appears following a news announcement. While placing these short-term trades can be tempting, they are by definition high-risk, and should only be attempted by very experienced traders.
 
When an announcement moves the market, it may move it a lot. That sounds great on the surface, but it rarely moves all one direction. The subsequent whipsaws (quick moves one way, then back the other) and order entry difficulties can make trading during the release itself very frustrating, and inconsistent.
 
The lesson to learn here, is that the news is not to be used as an immediate trading signal, but rather, a foundation for understanding how trends are developing in economies and currencies. The most significant thing that retail traders can do to improve their use of the news is to understand what the release really means and to get out of the short-term charts.

Tips for using the news and calendars
 
Avoid scalping news announcements. Traders trying to play the short-term impact of an announcement have a very high burn-out rate.
Pay attention to the trend of previous releases. If the announcement conforms to the price trend itself, a nice continuation is likely.
Major news announcements typically result in erratic volatility not predictable short term movement.
Don’t drown yourself in the news. It’s easy to get caught up trying to understand the likely impact of every possible piece of news, but very few releases will have much of an impact on actual prices.

Provided by Learning Markets

© 2004-2012 Alpari LTD