Jun 07 2020 0
The biggest impact that anything can make on the forex market is usually done by news. That's right, the daily news. Depend on the importance level of the news, the market will react differently to it. Moreover, there are periodical news that you can prepare in advance like Non-farm Payroll, Unemployment data, or Election Day... Based on these news and experiences in the past, you can have an idea of where the prices will go at certain time and trade accordingly. That's called news trading. And here we have the How to trade forex fundamental news pdf:
There are 2 main ways to trade forex fundamental news:
- Directional bias trading
- Non-directional bias trading
Directional bias trading
“Directional” means that you expect the price to move in a certain direction after a news release. When a trader knows about some news that can make the price move, he/she will look for trading opportunities in a certain direction.
How to trade
To put it simply, you apply this forex trading strategy by predicting how a certain news can affect the market and where the price would go. Your prediction should be based on how the market reacted to similar news before.
Let’s have an example:
The unemployment rate in the US is constantly rising. 6 months ago, it was at 1% and last month, it reached 3%. You believe that the upcoming data will show that the unemployment rate would continuously rise, so USD value would decrease. In this example, you’re trying to sell the USD/JPY pair.
At least 20 minutes before the news release, you should look at the price movement of USD/JPY and figure out the movement range. Take note of the peak and bottom, which would become your breakout points later. Since you predict that USD will decrease, pay attention to the lower breakout point of that range. Set your Entry Point at a few pips lower than that lower breakout points. Then, set a Stop Loss at the upper breakout point and Take Profit by the number of pips between those breakout points.
When the news is published, there will be two scenarios:
- If the news is not what you expected, which would make USD/JPY rise, your orders will not be executed. Nothing happens.
- If the news is what you expected, now you just need to sit and watch the trade happen. Then, you just need to take profits.
The key to properly assessing trends is that you have to understand the concepts behind the fundamental news you intend to trade. If you do not understand the effect it has on specific currencies, you can make the wrong decisions that cause losses to your account.
Non directional bias trading
The more common way to trade forex fundamental news is to approach the market in a non-directional way. This method will skip guessing the direction of the prices and focus on a simple fact that the market will definitely move in a certain direction whenever there’s big news. This means no matter which direction the market will head, you’ve already had a forex trading plan for it.
For this method, you don’t need to try to guess whether the price would go up or down. That’s why it is called non directional.
How to trade
For this method, you don’t need to guess whether the price will rise or fall after the news release. You can still trade and take profits as long as the news is big enough to affect the market. When news such as economic data or central bank announcements are released, traders should keep in mind that news like those often impacts the market the most.
Similarly, you should figure out the movement range and breakout points at least 20 minutes before the news release. The breakout points will be your entry points. You should set Stop Loss at 20 pips above and below the breakout points and Take Profit at the similar range.
For this method, you will trade in either direction. No matter which direction the price will take, you’ll have pending orders for both directions. This prepares you for every scenario. If the price moves in another direction, it will soon hit Stop Loss and your order is closed. If things go smoothly, you will not face any losses.
One of the best things about non directional bias trading is that it completely removes your emotions from the equation. No matter how you feel about the news, you have to follow the exact procedure strictly.
There are many ways of how to trade forex fundamental news, but these are the 2 most common methods. Like in any other trading methods, you need to take time to practice. To be more successful in the news trading method, you need to study economic indicators to understand why they are important. And remember that no success comes easily, so be patient and you will find that news trading is very rewarding when you understand it!