The news events are marked on the economic calendar and scheduled monthly or quarterly therefore released repeatedly every months same day of the week.
It is always important to checkout the daily news events before making any decisions to take a trade or as you monitor your running trades.
The economic calendar has a provision for the previous news release for last month, forecasted and the actual news release which provide a basis for comparisions to gauge the performance of the country’s economy before taking any position.
Forecasted: This is the figure determined by economist before the actual news are released by the source.
Actual figure: The real news released from the source at the date it was scheduled
Deviation: the difference between the actual release figure and the forecasted figure.
Once you have identified the news you want to trade on the economic calendar you need to interprete the figures so that you can relate it to how the market is reacting to it.
When the actual news released is better than forecasted news, we expect a rally in the currency in question upwards and when the actual news release is less than expected it still reacts to the market and rallies on downside. However there are sometimes when the news is released and the analysed results don’t match the market movement.
For instance taking in consideration of the expected hike in interest rates by Bank of England Nov 2,2017, the previous rate was at 0.25% and was expected to be raised to 0.5%. This means that all big market players are predicting that BOE interest rates is likely to be raised to 0.5% and so strengthening the Pound.
In this case,they adjust their accounts according to the predicted rate and so take more of the long positions before the actual news is released.
When the actual news was released, it turned out to be as expected 0.5%, to the retail traders it was a great signal for the strengthening pound therefore time to buy the pound. As most traders took their positions the market suddenly moved to the opposite direction instead of taking the news direction. This was because these big guys/big market makers had already adjusted their positions and infact they were already taking profits closing out their open positions which made the market go the different direction to the one that was expected on following the news.
So most of the traders who took long positions trading in the direction of the news lost their money. This is what actually happened in the market. Take a look.
It is also believed that the continuous fall of the GBP after the hike of interest rate by the BOE could have been the poor economic conditions at that time with high inflation rate, low production levels and the brexit crisis.
When trading news, if the actual news results is greater than the expected news,holding other factors constant, the currency in question appreciates and the market becomes more bullish. So we expect a strong uptrend. Buy the pair.
The example below shows what happened in the market after the release of retail sales in Australia which turned out to be more than expected/forecasted.
The AUD/NZD advanced from 1.08839 to 1.09533 covering 69.1 pips within 15 minutes after economic data in Australia favoring the AUD . Australian retail sales turned out to be 1.2% more than forecast which was 0.4% with a 0.8% advance. Australia’s positive retail sales data is a signal for a healthy economy and a future economic development hence attracting more foreign investors into the country. This led to increase in value of AUD and the strength of the currency. If this happens in any economy,go long on the pair.
It is also important to consider other news that are being released in the same time zone so that you are able to get a clear picture of the economy by taking the aggregate of the news. Forexample if there is one big influential news data released and many other moderate news released at the same time, the aggregate of the other news can make a great impact to the market, so watchout for that too.
If the news turns out negative and less than expected, the currency in question loses value and the forex market becomes more bearish. This is beacuase investors will sell off their positions and look for more yielding investments. So we expect to see a strong down movement.
Let’s take a look at a scenario where different news are released at the same time from different economies affecting one pair.
The USD/CAD fell from 1.25121 to 1.23539 moving 158.2pips in just 15 minutes after Statistics Canada released the December jobs report. The Canadian unemployment rate fell to its lowest reading in 40 years. The number of jobs added to the economy in December was 78,600 much higher than the forecasted 1,000. Unemployment rate fell from 5.9% to 5.7% and was 3% less than the forecasted. The increased number of jobs added in Canada’s economy is a good sign for a productive future economy and so investors were so confident to invest in the economy hence strengthening the CAD. On the other hand, NFP data turned out to be negative with only 148000 jobs created less than the previous month which was 252000 jobs and less than the forecasted jobs which was 190000 jobs with a difference of 42000 jobs. Although unemployment rate was constant as the previous and forecasted at 1.4%, this was not enough to save the USA economy. The other news that was released from the USA economy was also not in favor the USA economy and this made the dollar fall badly against the CAD.
The news can be traded in three ways;
By placing a trade before the news release with in 5-10 minutes to the time of news.
Analyse the market before the news release comparing both the technical and market sentiment and see what they are trying to tell you at the moment. Consider and pay attention to the recent news announcements in the market and the market reaction. If they all pointing to the same direction, place a trade 5-10 min before the news release taking direction according to your analysis and set your stop loss accordingly. If you are wrong according to the economic calendar reviews, your stop is likely to be hit and you are out.
After news is released
Taking a trade atleast 5min after the news release. Here you enter a position after the news is released. You are actually trading the news results. After you have done all the market analysis, you wait unto the news to be released only when you open a position. With this you are likely to face challenges with big spreads or sometimes delays in execution. Place a trade in the direction of the market and put a stop loss.
Or tading two way; before and after the news release.
Some traders trade news both before and after the news release. If you have put a trade before the news release and after the news the market goes your direction, you can add more trades by scaling in and trailing your stops. With this you can catch more pips in the market by taking advantage of the news.
Trading news is not as that simple as it sounds. You are either right or out of the market. So we emphasise whatever way you use to trade news carry on your risk management tools and don’t be so greedy.
How long you should hold an open position, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer, this...