In the ever-changing world of forex, news trading forex is one of the strategies that many traders are interested in, especially those who want to take advantage of strong fluctuations during news releases. However, unlike long-term technical or fundamental analysis strategies, news trading requires quick thinking, discipline and a deep understanding of macroeconomic impacts.
This article will help you understand the nature of news trading forex, the types of news to follow, popular strategies and the advantages and disadvantages of this method.
What is News Trading Forex?
News trading forex is a trading strategy based on economic, political or social events that can have a big impact on the currency market. When an important news is announced, such as a central bank interest rate decision or employment figures, the market often reacts quickly with strong price fluctuations.
Unlike technical analysis which relies on charts and indicators, news trading forex aims at “trigger” moments – when the market has not fully reflected new information. Therefore, this is a short-term strategy, usually taking place within a few minutes to a few hours after the news.
See now:
- Useful Prop Firm Success Tips For Traders
- Prop Firm Investment Tips to Maximize Trading Opportunities
- Prop Firm Investor Experience & Valuable Lessons
- The Forex Currency Pair: A Guide for Traders
Advantages and Risks of News Trading Forex
News trading is considered one of the most logical and intelligent forms of trading because many fluctuations in the financial market originate from and are affected by economic and political events. However, for a more intuitive view, let’s find out the advantages and disadvantages of the strategy right below:
Advantages
- Fast profit opportunities: Strong fluctuations help achieve goals quickl
- No need to hold orders for a long time: Suitable for those who do not want to stay overnight
- Close to economic reality: Helps understand the relationship between policy and the market
Disadvantages
- Spread widens: Many brokers widen spreads very large when news is released
- Price slippage: Easy to fill orders incorrectly, especially stop loss or pending orders
- Psychology is dominated: Strong news releases, quick reactions can easily cause stress and errors
Forex Trading News Support Tools
A set of 3 powerful tools that are indispensable for this trading strategy:
- Economic Calendar: Helps track the time of news release and the level of impact
- Real-time financial news: Bloomberg, ForexLive, TradingView
- Fast trading software: MT4, MT5, or platforms that support fast order matching, without excessive spread expansion
Important News Types In Forex Trading News
Scheduled News
These are economic events that are announced on a scheduled basis, such as:
- Fed, ECB interest rate decisions, …
- Non-Farm Payrolls (NFP) report
- Inflation index (CPI, PPI)
- GDP of major countries
- Retail sales, trade balance, …
These events often have a specific announcement schedule, helping traders plan news trading before the news release.
Unscheduled News
Includes unpredictable events such as:
- Financial crisis, natural disasters, war
- Political fluctuations (surprise elections, coups, …)
- Unscheduled statements by central bank leaders
This type of news creates high risks but is also a great opportunity for those who closely follow the market.
How to Trade Forex News Trading
To effectively conduct news forex trading, traders need a thorough preparation process:
Follow the economic calendar
Use tools such as Forex Factory, Investing or Trading Economics to update the release time and impact of the news.
Determine the news scenario
Before the news is released, traders need to analyze:
- What is the forecast result?
- If the result exceeds/below the forecast, how will the market react?
- How many pips can be expected to fluctuate?
Preparing scenarios in advance helps reduce emotions when trading for real.
Choose the time to enter the order
There are 3 trading times in forex news trading:
- Before the news (pre-news): Bet on expectations, high risk.
- During the news: React to real data, need to handle quickly and carefully because the spread is widening.
- Post-news: Confirm market reaction and then place an order, safer but the profit may be low.
Combining technical analysis
Even when trading on news, using technical tools such as support/resistance zones, Fibonacci, and moving averages also helps determine entry points – take profit – stop loss more effectively.
Types of News That Have a Strong Impact on Forex
Real traders definitely cannot ignore one of the important information below that has a direct impact on the trading market:
Interest Rate Decision
When interest rates increase, the currency of that country often strengthens. For example, if the Fed raises interest rates, the USD often appreciates. On the contrary, lowering interest rates often weakens the currency.
Employment Data
Reports such as Non-Farm Payrolls (US), Unemployment Rate (EU, Australia, UK…) often have a big impact because they are related to future monetary policy.
Inflation
CPI, PPI indexes help the market predict the next action of the central bank. High inflation = potential interest rate hikes = stronger currency.
GDP and trade balance
GDP reflects the strength of the economy. High growth usually causes the domestic currency to appreciate. Meanwhile, a large trade deficit can put downward pressure on the currency.
Forex News Trading Strategies for Beginners
The 2 most effective and simple news trading strategies that new traders often use are:
“Fade the Spike” Strategy
This is a strategy that waits for the market to overreact to the news, then trades the opposite way when the price returns to equilibrium. Suitable when the news causes an “overreaction” in a short period of time.
“Breakout on News” Strategy
Place a pending buy/sell order 15–30 pips away from the current price, aiming to catch a strong breakout after the news is announced. Experience is needed to handle when the price moves in the wrong direction.
Conclusion
In short, news trading forex is an attractive strategy with the potential for large profits in a short period of time, but it also requires economic knowledge, a strong mentality and strict risk management. If you are looking for a smart and practical approach to trading, news trading can be a suitable option, provided you are equipped with the necessary tools and knowledge.
See more:
