Forex News

Profiting from Market Sentiment

Although most successful Forex Traders use a healthy dose of technical analysis, the undisputed kings of market movement are fundamental news releases. Whether its an interest rate announcement, a comment made by a head honcho at an FOMC meeting, a terrorist attach or the announcement of the commencement of war between countries, forex news releases have the potential to move the markets by hundreds and thousands of PIPS in seconds, minutes and hours.

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There are various ways of trading the forex news, however. For some, trading the forex news is a complete strategy in and of itself. In fact, some news traders ONLY trade immediately prior, during and immediately after a forex news release.

Others will use news releases as part of their big-picture view of the currencies they are trading. They don't necessarily trade the news per se but rather incorporate the news event into their analysis of the fundamentals of the currencies involved.

Lets take a closer look!

1. Using the News as Part of Fundamental Analysis

Few traders utilize Technical Analysis exclusively. Almost all traders monitor important fundamental characteristics about the currency they trade. All successful traders, for instance, will closely monitor the prevailing interest rates in a nation if they trade that nation's currencies. More particularly, they will monitor the changes in interest rates over time. As well, they will monitor the changes in interest rates relative to those of other countries. In doing so, they can gauge a currency's strength over time in comparison to other currencies.

When interest rates change, they incorporate this new information into their outlook on that particular currency. They can then make more informed decisions as to whether a currency is expected to appreciate or depreciate over time.

Traders who use this strategy usually like to STAY OUT OF THE MARKET during news releases. News release times are very volatile. There is much price action and this action can often seem haphazard and downright random. Such traders prefer to let the market absorb the new fundamental information before they enter trades. Only after the initial reactions to the forex news announcement are priced into the currency value do they take a position.

2. Trading the News as a Complete Strategy

Other traders actually trade the volatile period immediately during and after a news report. News reports can generate a lot of volume and can move the market substantially in very short periods of time. This is especially true when news reports deviate from expectations. When this happens, currency prices can spike up or down by dozens and perhaps hundreds of PIPS in the space of seconds, minutes and hours. For instance, is the public, awaiting an interest rate announcement, is expecting a rise in interest rates of 25 basis points and in fact the government increases rates by exactly 25 basis points, there is likely to be very little, if any immediate price effect. On the other hand, if the interest rate hike is announced at 50 basis points, you can expect an immediate spike in currency prices for that nation's currency. Some traders have perfected this technique to an art and only trade news reports. They have historical data available for various news releases and know, on average, what level of spikes or runs to expect given a certain deviation from expectations.

Which technique you utilize is a personal preference and depends in large part on your appetite for risk and volatility. Trading the news as a complete strategy can be very rewarding and produce huge gains in short periods of time. It takes nerves of steel, however, and usually involves some experience. The safer, less riskier approach is to incorporate such news reports into your overall trading plan via fundamental analysis.

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