How I Trade The News - Part 1

Image courtesy of [Stuart Miles] /
News trading accounts for more of the huge success I have achieved in Forex Trading. I want to share with you my personal news trading strategy, which got me over 78 win trades, and about 26 loss trades since April 2014 till date. The money management made the bad trades highly insignificant when compared to the overall account equity and balance.

An infallible fact is that news trading is one of the highly profitable trading methods in Forex. It is precise and most times have a definite outcome because of the fundamental factors involved. However it is not that easy, hence a good deal of experience, and broad knowledge of the economic and political events in the world is necessary.

In my early years in Forex, i was quite glued to the technical way of trading. My first live account got burnt through the effects of an economic news release. At that time i was ignorantly trading during the news release, and in less than few seconds i got a margin call. I never knew at first that i was exposed to the swift impact of the news release.

News release most often comes with great volatility enough to drain an unprotected account. Brokers tend to widen their spreads at such times thereby compounding the effects. (In subsequent chapters i will share some tools to help you get prepared adequately for the news release).

I am not about to reinvent the wheel on news trading but to share with you my personal method, which i have been successfully using to trade the news. But before this is revealed, its important we understand some few basics and facts about news trading especially for those who do not have any knowledge on this subject.  

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Some Basics & Facts
  • Forex in the real sense is not just buying and selling of currencies. There is something that drives the appetite to buy or sell a currency.
  • Financial investors invest only in areas where they expect high returns. The choice of investment is determined by the economic performance, and strategic financial programmes of a country. The economic performance or financial statistics are released periodically. These figures serves as a guide to investors. 
  • Real investors invest in the commodity (tangible & intangible) of a country, which in-turn affects the currency positively or negatively. This is reflected in the price of the currency being bought or sold by the Forex traders.
  • Investors watch out closely for the outcome of economic news release. A good release would spur investments (BUY) and a bad release will cause withdrawal of investments (SELL). This is a simple way to define fundamentals in Forex.
  • The effects of these fundamentals in Forex is what drives the market. It is like the fuel a vehicle needs to move. Ordinarily the market would still move but the fundamentals has the capacity to change its course, and most often sends it wild.
  • News trading can be discomforting due to time factors. I am most often fortunate to trade the US & UK news release due to my geographic location. However i find it difficult to trade Australia, New Zealand, Asia & some other country's news release because it sometimes comes out at midnight in my location. 
  • Technical tools and strategies are most often useless or fails during a high or medium impact economic news release.
  • There is a high probability of spread widening by brokers during news release. So not all brokers are good to trade the news.
  • A very high impact news release can cause extreme movement of price (spikes) in nanoseconds faster than the eyes can see.
  • Most sideways movement and narrow movements usually occur as a sign of an upcomming news release.
  • Do not expect the best from your broker during news release. Prepare for unlikely mishaps, and unprecedented issues due to sever overload, and heavy request from data feeds. This often is responsible for error messages like "off quotes", "Invalid SL/TP", "Trade
    Automated News Trading System
    Timeouts", "Trade Context Busy", e.t.c. (My strategy takes care of this).
  • There is no Holy-Grail system to trade the news. However some systems have shown proven performance trading the news.

Major Currencies/Investments That Attracts Investors
We could refer this to the major news trading currencies. 

Major Trading Currencies:
United States of America (USD), United Kingdom (GBP), Japan (Yen), German (EUR) France (CHF), Canada (CAD), Austrialia (AUD)

Major Investments/Commodities (Tangible & Intangible):
Housing, Food, Energy, Fuel, Mining, Jobs, Sales, Manufacturing, Production, Services, Bank Rates, e.t.c.

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In the next chapter we'll reveal the necessary resources required for news trading. Meanwhile go through your charts and look out for areas where you can spot a spike. Study the chart pattern before it occurred and the reactions that followed.

Happy Trading.