Why you should (or shouldn’t) be trading during key forex news

While most retail traders tend to focus their trading strategy around technical analysis and price action, the truth is that fundamental indicators and financial news releases are the key drivers behind short-term market movements. The uncertainty before, during and after a significant financial announcement, however, increases both profit potential as well risk exposure.

Why you should (or shouldn’t) be trading during key forex news

Why you should (or shouldn’t) be trading during key forex news

While most retail traders tend to focus their trading strategy around technical analysis and price action, the truth is that fundamental indicators and financial news releases are the key drivers behind short-term market movements. The uncertainty before, during and after a significant financial announcement, however, increases both profit potential as well risk exposure.

 

Trading the news or trading forex during high-impact economic announcements is so appealing to traders because of their market-moving potential. High-impact news translate to higher market volatility which means greater fluctuations in exchange rates and therefore more profits to be gained.

Also, all successful traders would agree that major currencies are the most worthwhile to trade. As such, the trading volume of these currencies and particularly the U.S dollar, is massive and the forex pairs derived from these currencies, such as the EUR/USD, GBP/USD, USD/CHF etc. are considered the most liquid and advantageous pairs to trade in the market.

Forex News

Forex market news and the U.S dollar

Since the dollar is traded so heavily, it makes sense that forex trading news that revolve around its performance or outlook are highly anticipated by traders. The forex market, as a whole, is fairly correlated to the U.S economy and any sizable price movement in the dollar will have a pronounced effect on the market as a whole and vice versa.       

In fact, the U.S dollar dominates the market with almost 90% participation in all forex transactions. And It’s not difficult to understand why – since the U.S is the largest economic force and the dollar the world’s reserve currency. Moreover, you may have already realized that all 7 major forex pairs contain the USD as the base or quote currency in the pair for this exact reason.

 

A live forex news feed

We have already established that forex trading news can move the market substantially as well as create short-term market volatility which can be leveraged for greater profits by seasoned traders. This is where a forex news calendar or economic calendar, as it’s commonly called, comes in. You can find such a tool on all reputable forex news sites or even your broker’s website and it can help you keep track of all upcoming and relevant news releases. The calendar usually indicates the date and time of the release as well as its impact potential and the currency pair it may affect.

While a forex news calendar is incredibly helpful, however, you should always think on your feet as surprise announcements aren’t out of the ordinary and these are what move the market the most. Since they aren’t announced beforehand, the market doesn’t have enough time to digest the outcome of these releases which usually results in steep price spikes.

This is important to keep in mind because, sometimes, it’s not the actual report or the numbers that matter but how do the market participators react to the results. A surprising announcement or report may create uncertainty and this where volatility stems from, as traders rush to buy or close their positions to protect their investments.

 

How to trade forex news live

Despite the risk involved with trading during high-impact forex market news, there are traders who thrive on the added volatility and take advantage of the extreme market movements to gain more pips.

If you want to employ news trading into your trading strategy, you can mainly go about it in two different ways.

For example, you can be proactive and conduct extensive market analysis or compare past records against the anticipated results of the upcoming report. Then you can open your position in the direction you believe the market will move when the news come out. This is a highly risky proposition, however, as investors’ confidence and the market often react irrationally and even if your prediction was accurate, the end result may surprise you.

Some traders, however, prefer to act retroactively and much more conservatively. While they prepare by going through their trading plan and their research, they will only open a position after the market has absorbed the news and settled on the new direction.

This is a much safer approach, of course, but doesn’t enjoy the same profit potential as making an accurate prediction as most of the momentum will be gone and a there won’t be considerable movements after the fact.

 

Final thoughts

Regardless of how you aim to trade a specific news release or announcement or even if you want to avoid trading during the news altogether, it’s vital that you regularly stay up to date with a forex news calendar. The markets are sensitive to all sorts of geopolitical events and announcements from central banks which you need to consider before opening a position.

Also. make sure that you always employ a protective stop-loss and take profit target along with your orders to protect your investment in case the market moves against your position or there’s a price spike in either direction that can quickly move your balance into negative levels.

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