BEGINNER’S
GUIDE TO
FOREX NEWS
TRADING
TRADING FOREX ON NEWS EVENTS FOR BEGINNERS
BEGINNER’S GUIDE TO FOREX NEWS TRADING
DailyFX Research Team
Table of Contents
Part 1: Basic Concept & Best Practices ........................................................................................ 3
Choosing Events That Produce Volatility .............................................................................................. 3
Pick Currency Pair(s) That Fit The Trade .............................................................................................. 3
Basic Concept & Trading Tips ................................................................................................................ 4
Disclaimer................................................................................................................................... 6
www.dailyfx.com
2
BEGINNER’S GUIDE TO FOREX NEWS TRADING
DailyFX Research Team
Part 1: Basic Concept & Best Practices
Major economic events and fundamental developments are closely watched by currency traders, as
they reflect the strength of a given economy and may indicate direction of a given currency. Trading
the News is often difficult and may not be suitable to everyone, but the volatility that follows can
generate a trading opportunity.
Choosing Events That Produce Volatility
Before developing a ‘Trade the News’ strategy, market participants should familiarize themselves with
the key event risks that heavily impact the major currencies. During normal market conditions shifts
in government policy, changes in central bank policy, and economic developments tend to drive price
action. Being able to identify the key event risks can help avoid being on the wrong side of the market.
The DailyFX Economic Calendar highlights the fundamental developments coming out of the
economies with the most popularly traded currencies, and the number of events can range anywhere
from 100-200 for any given week. Indeed, it may be a cumbersome task to filter through the slew of
data. DailyFX has made the job easier by identifying the relative importance of each specific event.
Pick Currency Pair(s) That Fit The Trade
After identifying the event to watch, we usually want to trade the currency linked to that event’s
economy. Yet currency trading is buying or selling one currency against another; we likewise have to
pick the counter-currency. Choosing the appropriate currency pair is another crucial practice of
‘Trading the News.’
www.dailyfx.com
3
BEGINNER’S GUIDE TO FOREX NEWS TRADING
DailyFX Research Team
Our objective is to take advantage of a short-term spike in market volatility, but we want the lowest
cost associated with the trade and should look towards currencies pairs with deep liquidity. Deep
liquidity pairs usually include the US Dollar, Euro, or Yen, and those pairs tend to have lower spread
costs than some of the less popularly traded crosses.
Basic Concept & Trading Tips
There are a few strategies that come to mind when trading news events. However, finding the style
that fits one’s trading personality and tailoring it to meet different market conditions can help to curb
the risk for loss while broadening the scope to benefit from market volatility. Some strategies involve
setting up entry orders ahead of the event risk, while others are dependent on mathematical
calculations, but all require some degree of prudence and flexibility given the inconsistency in market
reaction. At times, the best move is to stand aside when traders show a muted reaction to the news
or when the market turns choppy.
There’s no single strategy to trading news events. When the news crosses the wires, there tends to
be either a sharp spike in one direction or a mixed reaction to the data as traders digest the outcome
against market expectations.
More times than not, it will be difficult to discern whether the initial reaction will continue to gather
pace as global investors weigh the implications of the data. Often, the best thing to do when in doubt
is to wait for confirmation in order to avoid ending up on the wrong side of the market. Letting the
noise clear should help currency traders get a better sense of where prices are headed.
www.dailyfx.com
4
BEGINNER’S GUIDE TO FOREX NEWS TRADING
DailyFX Research Team
In turn, here’s a guideline that involves some of the best practices:
•
Trade based on the outcome versus expectations, not versus the prior number (i.e. – Forecast
versus Actual)
•
Watch the initial reaction for direction
•
Wait for follow-through for confirmation
Beyond that, looking at the reaction in smaller time frames can provide a clearer signal of whether or
not to trade the event.
Depending on your level of comfort, timeframes ranging from 5 to 15 minutes can help identify the
strength behind the initial reaction, while using the closing price of a short-term candle as
confirmation can assist currency traders to catch the market reaction before it gets exhausted.
As most news events tend to have a limited impact on longer term price action, setting realistic
targets and stops should help to increase the number of winning trades. At the same time, traders
should implement a high degree of prudence when using leverage, as market reactions following
news events tend to be inconsistent.
www.dailyfx.com
5
BEGINNER’S GUIDE TO FOREX NEWS TRADING
DailyFX Research Team
Disclaimer
DailyFX Market Opinions
Any opinions, news, research, analyses, prices, or other information contained in this report is provided as general market
commentary, and does not constitute investment advice. DailyFX will not accept liability for any loss or damage, including
without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Accuracy of Information
The content in this report is subject to change at any time without notice, and is provided for the sole purpose of assisting
traders to make independent investment decisions. DailyFX has taken reasonable measures to ensure the accuracy of the
information in the report, however, does not guarantee its accuracy, and will not accept liability for any loss or damage which
may arise directly or indirectly from the content or your inability to access the website, for any delay in or failure of the
transmission or the receipt of any instruction or notifications sent through this website.
Distribution
This report is not intended for distribution, or use by, any person in any country where such distribution or use would be
contrary to local law or regulation. None of the services or investments referred to in this report are available to persons
residing in any country where the provision of such services or investments would be contrary to local law or regulation. It
is the responsibility of visitors to this website to ascertain the terms of and comply with any local law or regulation to which
they are subject.
High Risk Investment
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of
leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider
your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain losses in
excess of your initial investment. You should be aware of all the risks associated with foreign exchange trading, and seek
advice from an independent financial advisor if you have any doubts.
www.dailyfx.com
6