You cannot underestimate the influence of news on the forex market. If you do you are sure to disregard your technical analysis based system at one point but little will you know that your system is as innocent as you are as ignorant of the influence news has on the market.
If you want to involve yourself in the forex market; you must know what affects it. There is only one answer to that. The news! No matter how good your trading system is, disregarding global news will make you baffled at some unexpected market moves.
Use of news trading When News is released, especially relevant news, you certainly can expect the market to make a move because you can also expect other traders to be watching the news and therefore you can expect to act on the news. At such times it will be better to be on the correct side of the market
Dangers of News trading As with all methods of trading the forex market there must be a disadvantage. -Because the markets are so volatile after the release of important news, most brokers will likely increase their spreads and this can hurt your trading.
-Slippage becomes probable during periods of important news releases. It occurs if you trigger an order and due to huge volatility you are filled in with a different price.
-Big market moves don’t generally move in a single direction. There is usually a high risk of a good whipsaw before market participants eventually agree on which direction is the best to go relative to the particular occurrence. It can lead to profits but it is difficult to implement. You need to have a ability in global economics and its impacts on the forex market. And this is simply not easy.
Which News is important There hundreds of news reported daily and if you were to follow all these reports you will definitely mess up your trading system. Below we identify key news releases you should follow in order to be successful in news trading.
The US is the most important player in the market and you should follow for a start only news from the US -US inflation and central bank news are so important and play a big role in the forex market.
Also keep a keen eye on geo-political news like wars, natural disasters etc. Although this may not have bearing like central bank information it can certainly move the market.
Follow major stock market motions too.
It is important to note that when trading the news you should trade only the liquid pairs as they are the pairs affected hugely and directly by Fundamental analysis.
These pairs are but not limited to: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD.
We conclude with some general basics to note : When you have a directional bias, you are expecting price to move a certain direction, and you’ve got your orders in already. It is always good to understand the underlying reasons why the market moves in a certain direction when news is released. When trading using non-directional bias you are not bothered about where the price will go but are always ready to follow the market.