While many forex traders are technical traders and institute their trades based on technical indicators from a price chart, there are some traders who are basically pure forex news traders.
What is actually forex news trading?
The forex news trader is basically a forex trader who makes his decisions to trade based on news and reports that are released daily. He does not depend on any technical indicators at all.
Why is news trading possible?
The forex market is a 24 hours market, and there are 8 major currency pairs available for trading with well over 17 derivatives, therefore allowing the economic news releases almost daily from any one or more of these currency pairs to impact on their movements.
What are these 8 major currencies that forex traders often watch for economic news releases that impact on their value?
The eight major tradeable currencies are
1. U.S. dollar (USD)
2. British pound (GBP)
3. Euro (EUR)
4. Japanese yen (JPY)
5. Australian dollar (AUD)
6. Swiss franc (CHF)
7. Canadian dollar (CAD)
8. New Zealand dollar (NZD)
The availability of these currency pairs and their derivatives such as the USD/JPN, Euro/USD, AUD/USD and several others means that you can trade some currency or its derivative pair at any time as these currencies span the globe!
So for the forex trader who trades on the news, he will have his eyes and ears set on the release of economic news and data that affect currency values.
Generally, we will watch out for news regarding the interest rates or direction of interest rate such as the FOMC rate decisions, release of retail sales figures, indications of inflation which can be gauged from consumer price index or the producer price index, unemployment figures, news on industrial production, news that indicate a boost in business such as business sentiment surveys and consumer confidence surveys,manufacturing sector surveys and news on the country's trade balance(such as foreign purchases of US Treasuries).
Different new releases impact upon currencies, and often lead to breakouts in volatility.
The key to trading on news is to take advantage of these movements in volatility which can last a few minutes or hours, and even days into the future.
Trading purely on news release is harder than it seems, but the task is made easier and more profitable with the use of indicators, such as a breakout indicator as a bollinger band or a breakout of a candlestick or a price bar. Statistics have shown news release can trigger movements that range in size from 33 to 124 pips, leading to trading opportunities.
By studying into high probability trade setups that has occurred consistently with the release of historical economic data, the forex news trader can devise strategies that can allow him to extract fast profits from volatile movements arising from news releases. The potential gains can be massive where the forex news trader can react quickly.
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