Trading Forex based on Fundamentals and News

Forex news trading strategies are often bandied around as the easiest way to trade and make some quick profits from the Forex market, but the truth is these trades are extremely complicated.  This is due to the fact that the minute the news is released, there are literally thousands of trades being placed to take advantage of the “shift”.

As a result, there are very unique conditions that exist right after the news release that most inexperienced traders aren’t used to seeing and trading with. You can be like a deer caught in the headlights all the way to a hundred pip or more loss. Here’s how to avoid the dangers of news trading and the best Forex news trading strategies to employ.

The Dangers Of Trading The News

The first thing that catches inexperienced news traders unaware is the widening of the spread immediately after the news is released. The spread can literally widen by two to five pips depending on your broker and the currency pair you are trading. If your broker does not do straight through processing and direct market access, you may even experience a vastly delayed requote or flat out trade rejection! Imagine if you thought you had a trade in with a 100 pip profit, and then receive a requote for the current price… it won’t be pleasant to say the least. Before you decide to trade the news, you should study the trading conditions on offer from your broker very carefully lest you fall victim to this event.

Even if your broker offers straight through processing and direct market access, you may still be subject to slippage when you trade the news. Slippage means that you get executed at a price that is worse than your intended entry, and often this can be anywhere between five to ten pips worse. Well, you may think that it’s all well and good to accept all of these dangers considering that news release movements are one sweet movement in the direction of your trade. Well you may have seen those charts with that one huge bar that’s 200 pips in one direction, but have you seen the charts showing a 50 pip move one way, and then a 200 pip reversal the other way? That’s called a whipsaw movement, and it is designed to trap unsuspecting news traders into loading up one way and then taking them to the cleaners when it reverses in double time.

Example of Forex Trading on Recent News:

My Best Forex News Trading Strategies And Tips

With all these dangers that come with news trading, you should approach it with extreme caution. Never assume that there is such a thing in the Forex market as easy profits, because chances are, you will become the easy profit for someone else. Take your time and do your due diligence, which means opening a live account and simply watching the price behaviour and the spread of your broker and how it changes right after a news release. After observing a few high impact news releases, it’s time to get your feet wet with micro or mini lots. After all, there’s only so much observing you can do before you need to gain the practical experience of actually doing it. I would highly recommend that you don’t trade a demo account for this purpose, because a demo will never reflect the true trading conditions of a broker.

Personally, I like to use a simple straddle technique when trading the news. This is one of the simplest Forex news trading strategies around, and what you do is simply place a OCO order to buy at stop 25 pips above the range high and sell at stop 25 pips below the range low. When one order triggers, the other one is cleared from the system and if the price does follow through in the direction of the trade that was executed then you simply ride it all the way to the close and exit. Don’t get greedy and try to milk it for more than it’s worth, because the price often goes nuts after the first bar, or even within the first bar itself.

The Final Word On Forex News Trading Strategies

As simple as all this may sound, it’s actually extremely difficult to execute Forex news trading strategies in practice. That’s why you need to do your homework, prepare yourself and hone your skills. Most importantly, you need to treat the market with respect and caution to experience the best chance of success with the minimal risk.