Overview of Forex News Trading (aka Fundamental Forex Trading)
If you’ve read through our site and others, you know there are two sides to forex trading; Fundamentals and Technicals. Technical trading is all about reading forex charts, using moving averages, tools and indicators such as fibonacci studies and trendline analysis to find high probability trades. There are some very good ways to make money in forex technical trading. This section describes the other side of forex trading called Forex News Trading. This is where your odds of making good, profitable trades increase enormously.
Trading the news, is one of the best ways I know of making larges sums of money in very little time with very little risk. Financial news announcements get released every week. Some of these news announcement can and do move the market if there is a surprise in the announcement. For example, if a country is expected to raise it’s interest rate by a quarter of a point (0.25), the market prices this “expectation” into the price of it’s currency. When the announcement comes and the country decides to hold rates steady or raise them even more, e.g by half of a percent (0.50), this will absolutely move the currency. These are the kind of opportunities forex news traders look for and profit from.
Most news traders break even unless they have an edge. The edge we need is called "spike trading" and it's the only way to be consistantly profitable trading the news. Spike trading is a term used for playing the initial spike in price when a news event is released. This is where the money is made and the way to do this is with tools that get us into a spike trade immediately upon a news release. The only tool I know of, and have used used for almost 4 years, is called the Secret News Weapon (SNW) and it gets me into 80% of my spike trades. Sometimes prices move too far and too fast so no matter what tool you use, you will not get into a spike trade. But the news spike trades we do get in to, hold your hat, because you can make a lot of money within 10-15 seconds after a news release. Nothing beats news trading with the SNW for super quick and profitable trades.
News trading can also be challenging. In our previous example we said if a country raises it’s rates more than expected, we would expect it’s currency rate to increase. That could be so, but timing is also very important. If the interest rate announcement is accompanied by a statement from that countries Fed that indicates something like this could be the last interest rate hike for a while, this could have a negative effect on the currency. So instead of skyrocketing up, price stalls, flounders a bit and start crashing in the opposite direction. You would initially be on the right side of the trade, with a very nice profit and before you know it, price goes the other direction, stops you out and you lose money of the trade. This can, and does, happen.
How to Trade The News
You need to know two (2) things about news trading. First, you need to know when important news gets released. The second thing to know is, what kind of numbers will make your news trades work.
The first one is easy. Just look at any forex news calendar to see what news releases are due out and at what time of day. The one I use every day is the Forexfactory Forex News Calendar. This calendar shows you at a quick glance, all the news scheduled for release for the current week. The ones with Red folders are the ones to consider trading.
The second one is what can make you a lot money. To make money trading the news, the news release itself has to be a "shock". In other words, every news event has a Consensus number. This is the number the market is expecting. If that number is hit, or very close to consensus, then 99% of the time, that is considered a "No Trade". In other words, the numbers came out "As Expected". There were no surprises and chances are very good price will not be affected. However, when there is a surprise deviation, this is when price takes off. If the number is a "Good Surprise", then that's good for a currency and that currency would increase in value. If the number is a "Bad Surprise", the opposite happens and the currency you're trading dwould ecrease in value. As news traders, we look for these deviations from consensus and that's what makes us money.
So, the Million Dollar question is, "How do you know what a good deviation number should be?" The only way to know is to look at past performance of news releases and see what numbers caused the currencies to move. The one and only service I know of that has all this historical information in one easy to read place is from Fast Economic News and go to the Calendar menu. We also worked out a deal with them too so for our ForexBoost members, if you order their service through our site, you will save 10% off their service one-time service plan. And if you want to make serious money trading the news, you need to get the Secret News Weapon and watch your profits go thru the roof.
One of the best News Trades that everyone looks forward to is called the Non-Farm Payroll Report or what it's commonly referred to as NFP. This report comes out on the first Friday of each month. Everyone looks forward to this trade because if the released numbers deviate considerably from the consensus, then this can be a huge money maker. Some traders only trade this report. That's how important the NFP release is to forex news traders.
The first thing you would do is got to the Forexfactory Forex News Calendar to see what time the report is getting released and what the Consensus is. The NFP is always released at 8:30am EST but you should always double check every report just to make sure. The second thing you would do would be to go to the Calendar menu on the Fast Economic News site and find the previous releases for all the past Non-Farm Payroll reports. You would quickly see what deviations caused a huge move in the currency pair when this report was released in the past. I personally trade the USD/JPY (US Dollar vs. Japanese Yen) pair for this report. In my opinion, this pair is the most dependable pair to trade for this report. So, if you see that a deviation of 100,000 for example, caused a huge move, then you would Buy the USD/JPY pair if the number came out at 100,000 or better. And the opposite is true. If you saw a number worse than 120,000 historically caused a huge move in the other direction, you would Sell the USD/JPY pair. If you were fortunate enough to get the Secret News Weapon, you would put these deviation numbers into the Weapon and set your autoclicks. Then wait for the news to come out and if your deviation gets hit, watch your trade fly into profit. I suggest closing 1/2 of your position immediately after the initial spike. Then watch the price action and either go for more profit if price continues, or close out the final 1/2 if price retraces past 50% of the initial spike.
There are many reports released each week and sometimes you'll get a few each day! In my opinion, there's nothing more profitable than news trading in forex. At least with news trading, you know exaclty when to be ready for a trade and you can get in immediately. With technical trading, you really need to watch all your charts and indicators all the time, to make good trading decisions. I'd rather sit through a news release trade for 15-20 minutes than look at my charts for a few hours waiting for a setup. Dont' get me wrong though. I enjoy technical trading, but for faster profits and much less risk, nothing beats trading the news.
Forex News Trading Summary
For trading forex, you need to have money to start with. If you can’t start a forex trading account with at least $2500, my recommendation is to stay out of news trading with us. Needless to say, the more money you start with, the more money you can use to trade and the higher profits you will make.
This is a great business and I’m so glad I decided to get into forex trading when I did. I’ve been at this for years and expect to do it for many more years. I also expect to have enough money to have a nice, early retirement for myself and my family. News trading is one of the main reasons why I'm so much closer to my financial goals than every before.
If you have any questions at all about this or forex trading in general, just click the Contact Us link and ask away. I’ll do my best to answer your questions.