Forex news trading is probably one of the most exciting forms of trading because it can produce instant profits and instant gratification. Our team at Trading Strategy Guides has been getting lots of questions in terms of how to trade around big Forex news events. Through this news trading strategy guides, you’ll learn how to trade the Non-Farm Payroll Report (NFP), FOMC, central bank interest rate decisions and any big Forex news events.
What you’re about to learn throughout this Forex news trading guide is extremely valuable because there are a tiny, tiny few traders in the entire world who apparently are able to correctly trade the news.
This has the potential to completely change the way you see Forex news trading and how to make money trading. Before diving more into this Forex news trading guide you can check out 2 key invaluable tips that will help you make money in the long run: How to Make Money Trading – 2 Keys to Success.
There are many misconceptions about Forex news trading, but we’re here to debunk all the myths.
Let’s move forward and debunk one Forex news trading myth at a time.
Forex News Trading Strategy Myths Debunked
We’re sure if you have been for quite some time in this business, you have come across some of these myths. First of all, we have two groups of people: we’ve got the traders who don’t trade the news and traders that trade the news.
The first group of traders treats Forex news trading as something to be scared of, so you’ll hear things like “the news should be avoided” and if there is a high impact Forex news event you should just stay out of the markets. This fear of Forex news trading is irrational and only shows a lack of understanding of the markets.
Forex news trading is unpredictable and high risk is another myth that needs to be debunked. Throughout this news trading strategy guides you’ll learn how having the right approach to Forex news trading it will make news trading predictable to a certain degree.
Forex news trading can be profitable. The process to predict the news can be fairly simple if you put in the necessary time, practice and efforts to understand the mechanism behind Forex news trading.
Now we’ll show you, how you can know which way the price is going to go before the news comes out. We’ve developed a simple three-step process for Forex news trading. Here is an approach to currencies by Warren Buffett.
Forex News Trading Strategy Step by Step Guide
Following this Forex news trading step by step guide, you’ll be able to achieve consistent profits in the long run. As we mentioned previously, we’ve developed a simple news trading strategy that follows a three-step process:
- First of all, you need to decide which Forex news events to trade.
- Which currency you’re going to trade on that particular Forex news event.
- Establish in which direction that currency is going to move.
You also have to answer another important question whether you’re going to enter before that news event is released or after. This question is related to the last point of our news trading strategy three-step process. Here is another best strategy called trading volume in forex.
If we’ve established a firm bias on how the currency will react to the Forex news event than we’re going to get in before the news comes out because we already know which way the price is going to move. However, if we can’t establish a clear bias, depending on how the market reacts we might or might not get an entry price. This might sound too good to be true, but moving forward, we’re going to show you evidence that it’s possible to successfully trade the news.
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Step #1 Choosing the Forex News Event
The Forex market trades 24h around the clock which means that the Forex economic calendar will have scheduled Forex risk events from different parts of the world. However, not all Forex news events are created equal and we should only focus on high impact news that has the potential to generate big Forex moves like:
- Central Bank Interest Rate Decision
- Unemployment Rate
- Inflation Figures
- Geopolitical and political events
- NFP Report
For the purpose of this news trading strategy, we’re going to choose the NFP report because it tends to produce spectacular volatility thus generating great trading opportunities.
After you have picked your key Forex news event that you want to trade it’s time to make sure you pick the right currency for that particular news event.
Step #2 Choosing the Forex news events Currency Pair
When trading big Forex news events you want to focus more on the major currency pair and the most liquid currency pairs. For example, if you trade the US NFP report you want to focus on trading the USD crosses like EUR/USD or USD/JPY. Our team at Trading Strategy guides has found out throughout extensive research that USD/JPY is more predictable during the NFP report than any other currency pair.
If the BOE announces the interest rate decision you want to focus on trading the GBP/USD. By now you hopefully you get the picture.
Step #3 News trading strategy Establishing a Directional Bias
Establishing the bias requires some work from your part. You need to read the news to absorb the sentiment. This is very simple as you don’t need to have fancy equipment to do so.
For example, the market consensus for the June NFP report was 181k versus 174k from the previous reading. This means that the market sentiment and the build-up ahead of the news release were quite positive. However, the NFP reading below 200k is still not enough for the Fed who seeks to hike rates, in which case it needs to see stronger evidence of a healthy labor market.
Now, getting our focus to the USD/JPY price chart, we can also notice that the market was already trying to discount the positive NFP numbers as USD/JPY rallied right into resistance level prior to the NFP release. We want to emphasize the importance of relying on technical analysis and price action when trading the Forex news events. Actually, trading the news without the price action is more like gambling because the price can give us lots of information on the news before it even gets released.
The easiest way to interpret the price action is through support and resistance and our team at Trading Strategy Guides is proud to show you how to correctly trade support and resistance here: Support and Resistance Zones – Road to Successful Trading.
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Step #4 Taking a Live Trade based on the News Trading Strategy
There is an unspoken truth about trading which is that when the majority of the market participants are positioned on one side of the market usually the market goes in the opposite direction. In our case, we can note how the majority of traders were positioned long going into the NFP release and they must be wrong.
Once we have established they are wrong, we can safely enter short, because we have the technical in our favor, the market sentiment used as a contrarian indicator and last but not least the NFP forecast number wasn’t that great either if you take into consideration the current state of the US economy and the Fed’s monetary policy stance.
What happened next is that the NFP figures come out, but missed the market expectation and only shows 138k new jobs added which is an awful number that is negative for the dollar and the USD/JPY pair.
The most important thing you need to keep in mind is that you don’t need to trade all Forex news events. Only trade when you can establish a firm bias and when you have strong evidence to support your trading idea. Here is another strategy called The PPG Forex Trading Strategy.
When trading the forex news you need to pay attention first to which currency to trade, secondly is the direction (up or down), thirdly you need reasons and evidence to support your bias. You also need to know what the market expectation for that Forex news event is. Every economic calendar comes with forecasted figures for all Forex news events so this is easily accessible to you.
Last but not least, you need to assert the market sentiment by studying price action and using technical analysis tools. If you can’t find an agreement between all these factors then you shouldn’t be trading the Forex news events.
Thank you for reading!
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