Trade The News (Part I)
Learn forex scalping. Financial markets react violently to the release of economic news. The release of the NFP figures, the housing sales figures, the GDP figures or other socioeconomic and political news mostly makes the markets nervous and volatile. Volatility is what makes forex markets so attractive.
Develop your own forex trading system. One of the popular strategies of trading forex is news trading. This type of trading provides the possibility of instant gratification. This strategy is intriguing to many traders. You enter the trade minutes before the expected news release. Your heart pumps. You are nervous when the clock ticks within 60 seconds of the number coming out.
Get good forex training. The news comes out. Either you feel an instant sense of elation, a trading high that you had the right instincts or an instant sense of frustration when the market behaves in a totally unpredictable fashion. News trading is great. News trading is for those traders who like a lot of action within a short period of time.
When an economic number deviates significantly from the consensus forecast, there is usually a knee jerk reaction in the markets accompanied by a decent follow through. This is the basis of news trading. News trading if done incorrectly can lead to more losers than winners. So you have to be careful. There are many ways to trade the news.
Attempting to capture the volatility in the currency markets created by a news release is what trading the news means. This volatility in the currency prices creates the breakout trade as the price action smashes through the support or resistance. You must note that a news trade is not a trade that is placed just before the news is released or is placed just after the news is released.
Many traders follow the adage, “Buy the rumor and sell on the news”. Many traders trade the news. You must know news trading is a risky business. There are several forms of risks unique to news trading. You should understand the risks involved in news trading. [spin]
[spin]Many brokers charge more for a trade just after news is released. The spread charged by the brokers may jump to 15 pips from 3-4 pips right after the release of the NFP Figures.
Most brokers are flooded by thousands of orders in just a few seconds and find it difficult to enter your order just right after a news release. This means that your order may take longer to process. Your trade could be entered many pips away from where you had wanted.
The stop order placed by you needs to be touched by the price before it’s triggered. However, sometimes after the release of fundamental news, the markets can become highly volatile and jump several pips all of a sudden.
For example on the EUR/USD currency pair, all of a sudden on the release of the news the price may suddenly jump from 1.3249 to 1.3255. Suppose you had the stop loss order placed at 1.3250. The price jumped from 1.3249 to 1.325 without ever touching 1.3250 price levels.
Your stop loss order was not triggered. The price never touched 1.3250. You did not get stopped out. You are still in the market. You are exposed to potentially unlimited losses.
