How News Affects Online Trading
The advantage of trading the forex market is that it can be done 24 hrs a day. Therefore there is always something happening that could affect the market in one way or another. News is one of the top motivators of market movement. The market responds to different economic news items or sometimes non-economic news alerts.
“Forex traders trade currencies from around the world which can be affected by both local and international news.” [Tweet this]
Focusing on the Most Important News
When you decide to trade news, it is important that you know the expected news announcements that week. Fortunately, there are a variety of online sites that specialize in giving forex traders this information.
Once you know the news for the week, it’s also vital that you know which news items are likely to impact the market in a major way. There are several news announcements that can affect the market in major ways. These items include:
- An announcement of interest rate decisions
- Retail sales
- Inflation
- Unemployment numbers
- Industrial production
- Some business sentiment surveys
- Trade balances
- News on manufacturing sectors
The Duration of the Effect
Sometimes you will find a major news assignment affecting the market for a few hours or even sometimes days. Traders who have a clear indication of how to use news to trade the market can profit handsomely as they predict what will be the effect of different news announcements.
Studies have however shown that the bulk of movement often happens within the first and second days of the news release. By the third day the movement is not too much but still considerable for trading. It is expected that by the fifth day, the effect of the news on the market begins to lessen.
How Can You Effectively Trade the News?
The easiest way to trade the news is to look for a consolidation period that is ahead of a big number and just trade the breakout on the number. When news that could influence the market breaks, the market is very volatile, and there is always a period of indecision that you can actually chart by temporary bursts in unpredictable market swings.
Because of this volatility, trading the news is actually harder than it looks. It is not uncommon to find players have stopped out before the news can actually move the market. This often occurs when the trader enters the market at the wrong time.
The market may also lack the momentum to keep moving, resulting in the market turning against the trader. This scenario can however be avoided by taking trades in a lower time frame.
Trading the news can be thrilling and carries with it a high reward. However, there is also the risk that you could enter the market at the wrong time and end up with a little loss. This is why a stop loss is important.
Do you trade the news? Share with us the strategies you use to trade the news and how it has worked out for you so far. Just add your contribution to the comments below.
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