Home Tutorials Forex Market Analysis 02 - Trading Economic Data Releases: News Trading. By Vantage FX. Jul 12 17, GMT. Stay udpated with our FREE Forex Newsletters. Download our Free Forex Ebook Collection. Featured Analysis. Load more. Learn Forex Trading. Do You Want to be a Trader?

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Industrial production 6. Business sentiment surveys 7. Consumer confidence surveys 8. Trade balance 9. Manufacturing sector surveys. Depending on the current state of the economy, the relative importance of these releases may change.

For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on top of what the market is focusing on at the moment. According to a study by Martin D. Evans and Richard K. Lyons published in the Journal of International Money and Finance , the market could still be absorbing or reacting to news releases hours, if not days, after the numbers are released.

The study found that the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day. The impact on the flow of buy and sell orders, on the other hand, is still very pronounced on the third day and is observable on the fourth day.

The most common way to trade news is to look for a period of consolidation or uncertainty ahead of a big number and to trade the breakout on the back of the news.

This can be done on both a short-term basis intraday or over several days. After a weak number in September, the euro was holding its breath ahead of the October number, which was to be released to the public in November.

A pip is the smallest measure of change in a currency pair in the forex market, and since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point. For news traders, this would have provided a great opportunity to put on a breakout trade, especially since the likelihood of a sharp move at this time was extremely high.

The chart above illustrates—with two horizontal lines forming a trading channel —the indecision and uncertainty leading up to October non-farm payroll numbers , which were released in early November. Note the increase in volatility that occurred once the numbers were released. We mentioned earlier that trading news is harder than you might think. The primary reason is volatility. You can be making the right move but the market may simply not have the momentum to sustain the move.

This chart shows activity after the same release as the one shown in Figure 2 but on a different time frame to show how difficult trading news releases can be.

On Nov. economy gained only 56, jobs. The disappointment led to an approximately pip sell-off in the dollar against the euro in the first 25 minutes after the release. One thing you should keep in mind is that, on the back of a good number, a strong move should also see a strong extension. dollar was able to take control and push higher.

Keep in mind, when the U. dollar is appreciating against the Euro. One potential answer to capturing a breakout in volatility without having to face the risk of a reversal is to trade exotic options. Exotic options generally have barrier levels and will be profitable or unprofitable based on whether the barrier level is breached. The payout is predetermined and the premium or price of the option is based on the payout. The following are the most popular types of exotic options to use to trade news releases:.

A double one-touch option has two barrier levels. Either one of the levels must be breached prior to expiration in order for the option to become profitable and for the buyer to receive the payout. If neither barrier level is breached prior to expiration, the option expires worthless. A double one-touch option is the perfect option to trade for news releases because it is a pure non-directional breakout play.

As long as the barrier level is breached—even if the price reverses course later—the payout is made. A one-touch option only has one barrier level, which generally makes it slightly less expensive than a double one-touch option.

The same criterion holds—the payout is only made if the barrier is breached prior to expiration. This is a good option to buy if you actually have a view on whether the number will be stronger or weaker than the market's consensus forecast.

Options on currencies are a viable alternative for those who do not care to get whipsawed in the markets by undue volatility before they actually see the spot price move in their desired direction; there are different types of currency options available through a handful of forex brokers. A double no-touch option is the exact opposite of a double one-touch option. There are two barrier levels, but in this case, neither barrier level can be breached before expiration—otherwise the option payout is not made.

At this point we must be cautious in the Forex market, because transactions are made on currency pairs, buying one and selling the other. We must ensure that the data causes the currency pair to move in the proper direction. When we open a long position with a currency pair, what interests us is that the first of the currencies that make up the pair base currency raises its value against the other currency. If we open a short position, we will look for the opposite: negative news for the base currency.

In this case, we will be interested that the remaining currency quoted currency moves in the opposite direction. Therefore, the news for this currency must be negative when our position is long and positive when our position is short.

This point is important, it is the true essence when it comes to trade with events and economic news. At the beginning of this article, we have commented that investors are based on forecasts and expectations when making trading decisions, in many cases anticipating the news release and causing the market to discount it in advance.

If this is the case when a piece of economic news is published, there is great volatility and volume in the market, when all or the vast majority of traders have already opened a position? This is what causes the market to react. The greater the deviation produced between the published event and the forecast made by the consensus of analysts, the greater the impact of the news in our trading.

It is for this reason that good news , sometimes, can generate a decrease in the prices of a currency pair or any other asset. The same can happen with the bad news that being less bad than expected, generates a rise in the prices. From these statements we can obtain a valuable lesson, fundamental when it comes to trading economic news: Do not try to interpret the news on all occasions, the markets are moved by the reaction they provoke in the investors, not by its real impact on the economy.

The greater the importance of the news we can help ourselves to know this with the exclamation signs in the economic calendar , the greater impact and repercussion it will have on the market. If we add to news of greater importance a deviation that causes a big surprise for the investors, the movement in the periods after the publication can be of great importance.

It is at these times that there will be greater volatility and uncertainty in the market. We must be cautious and, at the same time, establish a good strategy to trade in these situations.

Trading with economic news has its risks. The first and foremost of them is the one produced by high volatility. A movement in the price so strong can make us earn a lot of money, but it can also make us lose more than expected. The trader must be especially prudent, disciplined, and calm at this time. When there is economic news, markets do not move on a regular basis, there are many transactions, both long and short, and this can have as a consequence that the price is turned in addition several times before taking a definitive direction.

The turns against can be also volatile, which can even lead the trader to think that this direction is what the market will take. The volatility of these price reversals, together with the false signals, constitute a dangerous scenario.

In other words, markets can become untamable during the first few minutes of economic news. Much noise and confusion is generated when such an amount of transactions is produced in such a short space of time. You have to think that the price moves so fast that even the broker, at times, can not execute the order at the price at which we want.

In short, to trade news properly it is necessary to have a certain experience, cold blood, trade with a reliable broker to execute orders quickly, and, most importantly, a proven strategy. As the main advantage, we can affirm that, at the moment in which these factors are controlled, economic events can generate great opportunities to obtain benefits and they occur practically every day.

There are several types of trading strategies that allow us to trade economic events:. A good trading strategy is to perform an analysis of the economic news for a certain area or a certain currency , which will happen during the day. Above all, we must analyze the forecasts that exist for them. Are the forecasts positive or negative in most cases?

If the forecasts are coherent and point in the same direction the majority , there is a good chance that this currency or financial instrument will move in the direction indicated. Now, the Forex market is made up of currency pairs. If we have been observing one of the currencies, what is the other currency that will form the pair in which we are trading?

In this case, it will be necessary to search the calendar for news or events that affect the other currency in the opposite direction. For example, if we have been observing that the forecasts of the news are positive for the euro, we should look for news with negative forecasts for another currency. The same can be applied to any currency pair and for short trades in this case, we will look for negative forecasts for the base currency and positive forecasts for the counter currency.

This strategy is designed above all for intraday trading day trading , taking positions that can last from a few hours to the entire trading day. However, it can be executed in higher time frames analyzing several days. This strategy is based on the expected volatility and not so much in the direction in which the asset can move.

For this, two pending orders will be placed. That is, programmed to be executed when the price reaches the pre-established level.

The orders are placed on both sides of the quote: A long position above the price and a short position below. A few minutes before the publication of the news. For this strategy to work well it is necessary that the news is of greater importance, since what we need is that it has the greatest possible impact. When the news is published and the price moves explosively, some of the programmed orders will be activated.

At this time, we can try to hold the position a few points in our favor and close the trade. It is also possible to establish a Take Profit order a few points away from the opening of the order.

When the price reaches the Take Profit order, the transaction will automatically close with benefits. We have the possibility and sometimes the temptation to hold the position longer, and not close it manually or automatically in such a short space of time.

However, given the unpredictability of the market and the high volatility, it is inadvisable to hold the order open too long.

It is a strategy focused on very fast trades Scalping type. We wait a few minutes to eliminate the false signals during the later instants and we observe if the news has been good, or bad, the deviation, and how it seems that the market is taking it.

After that, it would only be a matter of trading in accordance with the conclusions obtained and confirmation that the market is moving in the direction expected. We will get a stretch of the impulse taking advantage of the inertia and avoiding the first minutes of confusion and danger. The greater the impact of the news, the greater the momentum and, therefore, our possible gains. There is a variant to this strategy that provides greater security. This strategy is only based on trading that news that have suffered a deviation with respect to the expected data in more than 50k 50, This deviation figure is considered acceptable, but each trader can establish which minimum figure of deviation between the forecast and the published data may be suitable for him, depending on his experience and the tests he has done.

Small deviations from forecasts do not usually cause a strong movement. It is necessary that there is a strong and surprising deviation for the operators and thus capture a strong impulse. While we take a few minutes to analyze the deviation and its implications, the market can calm down to establish its definitive direction.

It is necessary that there is a strong and surprising deviation so that the traders can pick up a strong impulse. It will be enough to confirm that the direction in which the market moves agrees with our conclusions when analyzing the deviation of the news.

Although this strategy does not pose as much risk as the previous one, we must take all the appropriate protection measures. NOTE: The release of any news can be a good catalyst for the breakout of a significant short-term resistance or support including trendlines.

It will be necessary to pay attention to these zones and determine if the publication of the news has been able or not to penetrate them. This technique can be the basis of a trading strategy in itself.

It is always important to place a stop-loss order, especially when we are faced with such a volatile scenario with the described risk characteristics. A Stop Loss order is a pre-established, programmed order similar to the Take Profit order. This order is to close the position, not to open a new one. It is about closing the position if the price changes its direction against us. The idea is to abandon the market and cut the losses, assuming that the transaction has not moved in the direction we expected.

The biggest and most obvious part of fundamental analysis is trading economic data releases, or more simply as traders call it: News trading. So that everyone in the market has a level playing field when it comes to market sensitive news, each economic data release has a set time and date that it must be released. This means that at this particular time EVERYONE is watching and trading that particular forex market.

All this attention leads to volatile market conditions as everyone tries to outwit each other in the race to best position themselves.

There are literally hundreds of economic data releases every single day. Think about it. Every single country in the world releasing data such as unemployment, retail sales, GDP, trade balance. The list goes on forever. Of course not. But on the other hand, a big and unexpected drop in the tier 1 US unemployment rate could have catastrophic effects on not only USD forex pairs, but across the entire forex market. Do you remember the GFC? NFP, as traders refer to the release, is the monthly change in the number of employed people in the US economy with farming excluded.

It is a major barometer for the health of the US economy and in term the globe. Mark them on the calendar and manage your risk accordingly. com was set up back in with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.

Contact us: contact actionforex. Tue, Nov 22, GMT. Contact Us Newsletters. Sign in. your username. your password. Forgot your password? Get help. Privacy Policy. Password recovery. your email. Action Forex. NZD Recovers ahead of RBNZ Hike, Dollar and Euro Dip. Dollar Rally Stalled Once Again, CAD Looks into Retail Sales.

Dollar Rebounds Further, But Vulnerable if Risk-on Sentiment Returns. Dollar Extending Recovery, Euro and Sterling Soften. Home Tutorials Forex Market Analysis 02 - Trading Economic Data Releases: News Trading. By Vantage FX. Jul 12 17, GMT.

Stay udpated with our FREE Forex Newsletters. Download our Free Forex Ebook Collection. Featured Analysis. Load more. Learn Forex Trading.

Do You Want to be a Trader? Jul 24 17, GMT. Get to Know the Positive Aspects of Being a Forex Trader Aug 13 17, GMT. Defining A Great Trader Mar 05 19, GMT. Practical Tips for Those Who Want to Trade Safe on Forex Jul 24 18, GMT. How to Use Yearly, Monthly and Weekly Opening Points Aug 13 17, GMT.

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In the case of the euro, it will be necessary to pay attention to the meetings and decisions of the European Central Bank ECB. NZD Recovers ahead of RBNZ Hike, Dollar and Euro Dip. economic numbers, but also to news from around the world. com © All rights reserved. Keep in mind that in times of high volatility there may be sudden movements in the price which can produce price gaps so a conventional stop loss may not be executed properly as the price may not pass through that exact level you have marked.

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