Forex News Trading Strategy That Works
It is undeniable that the main economic events can move the market significantly. In order for such thing to happen the deviation between the forecasted and the actual numbers should be considerable. If the difference is big enough it is usually being “priced in” very quickly giving the traders good opportunity for gaining the profit. In this article I’d like to share with you one of the most effective and simple strategy to trade during the economic news releases.
Where do you start?
First of all, you have to make a list of the economic events during which you’d like to trade. According to my own researches and a long-time experience as a forex trader, those are the main releases with the highest influence to the market:
- Nonfarm payrolls
- Retail sales
- Inflation (consumer price or producer price)
- Industrial production
- Trade balance
- Manufacturing sector surveys
It is well known, that the economic news from the USA impact markets the most. However, the other countries’ releases can also be valuable. So the next thing you do is choosing your currency pairs. My recommendation is to start with one major pair if you’re new in trading. And after you get better with the news trading, you can spread your activity. But keep focused; make sure that you’re trading only one event at the time. And now we’re coming to the strategy itself.
STEP 1. Preparation and research
When you figure out what would be the events you want to trade, write them down with the time of release and the forecasted numbers. Then prepare the trigger sheet (see also example): an Excel file with the event name, forecasted number and the trigger numbers which will show you whether or not enter the trade. During the news release, the trigger sheet will help you to save time thereby increasing your profit.
There are two ways to estimate the deviation trigger:
- You can do your own research by comparing the historical data during the similar releases.
- You can use simple 20% rule: if the actual number is 20% worse than the forecasted one – sell the respected currency, if 20% better – buy.
Let’s take a look to an example: If you trade the Unemployment Claims news report and the forecast (expected) number is 328k but the actual number (release) is 396k, the deviation is significant and the difference will be “priced in” quickly. In this example deviation is 20.73%, which can be considered as a good trading opportunity.
STEP 2. Shortly before the release
It is very important to stay focused during the news release, and nothing should distract you. So what you have to do is take away whatever can make you lose the concentration, like Skype, music, cat. Also erase all the unnecessary elements from your trading terminal. However, you want to be sure that you have the one-click trading activator on your chart with the lot size already setup. It will save you plenty of time during the trade. You know like old samurais say: before the battle, empty your heart and clean up your mind. Just kidding, but keep it as optional, though.
STEP 3. During the trade
First of all, you have to remember that 95% of your success is the preparation. So you want to make sure that you really worked hard on it. When the news will be released the market usually goes pretty wild, but you have to stay cold minded and follow your trigger sheet for 100%. The market could act according to the two different scenarios.
The first one is when the deviation is not big enough, and the price didn’t reach any of your triggers. In this situation, it is very important to remain calmness and do not try to force the trade. If this happened, than it wasn’t good enough for trading.
The second scenario is when the trigger is reached. This is the time you’ve been waiting for. Enter immediately and place the order in accordance to which trigger has been reached. Although, if you did your homework careful, the direction of the price movement is very predictable, don’t forget about SL and TP. As a basic recommendation I’d say to set the SL at 20 pips and TP at 60 pips. It is also a good idea to change your SL into the trailing SL.
News trading strategy is considered to be an effective and simple strategy. Your profit depends of the trading lots, but in general, it is around 5%-15% per month. Even though risk range is not high, since you only enter the market when the news is on your side, and from that point price, action is quite predictable. I would still recommend the new traders to start with the smaller lot size until you gain enough confidence in what you’re doing and learn to be cold-minded.
Forex tools for news trading
So now let’s look on what could help you in your news trading quest. First of all, it is a trigger sheet. You could keep it as an Excel file, or print it and keep it next to you.
Another very helpful thing would be the FX Pulse 2.0 – free Meta Trader 4 plugin that delivers the main forex economic news directly to your chart. It is very fast and displays the news at the same moment they appear. So you already see everything on your chart window, while all the others are overloading the forex news websites by hundreds refreshments per second. So go ahead and download FX Pulse 2.0 from here.
I hope this article has been useful and helped you to find out more about forex news trading. Although, I have to remind you that every strategy requires practice, and you better try it on demo account first.
Have a good trading.