News trading forex strategies

News trading forex strategies

Updated: Aug 24, 2022
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I. Forex Trading News: How to trade with them?

Trading the news is becoming quite popular in the forex market , although, from my point of view, it is not fundamental analysis itself, it can be framed within it. Many times you can see how the price of a certain currency pair suddenly moves 50 or 100 pips in an instant or a few minutes after the publication of important news and obviously that big movement is a great trading opportunity. However, you have to be quite prepared to face the risks associated with trading at this time.

The goal of this and the following lessons on news trading is that by the end of reading it you will be able to practice a specific strategy for trading the news as well as fully understand the associated risk warnings.

Reasons to trade during the news release

As we mentioned a couple of paragraphs above, after the publication of the most important forex trading news there can be large movements in the financial markets from which you can take advantage and make a good profit and this in itself is an important reason. to incorporate news trading into your portfolio.

Throughout the day you can find numerous opportunities because Forex is open 24 hours, you can find the publication of important news from different countries practically every day.

Forex Trading News: The best pairs and times to trade the news

Any pair can be traded during the news, however there are currencies that can be considered better for this operation due to, in other things, the frequency of news, liquidity of the market for that currency and the importance and size of the economy of the country, among others. data and financial instruments that will help your trading operations. The time at which the news is usually published in each country is different from one to another and it is important that you know this time to find the one that best suits your local time. That is why all the recommendations and information contained in this page will help you to operate better and better through the news.

Symbol Country Badge Time (GMT)
USD USA Dollar 13:30 – 15:00
EUR European Union Euro 07:00 – 11:00
JPY Japan And in 23:50 – 04:30
GBP Great Britain/UK Pound 07:00 – 09:30
CHF Swiss Frank 06:45 – 10:30
CAD Canada Dollar 12:00 – 13:30
AUD Australia Dollar 22:30 – 00:30
NZD New Zealand Dollar

The risks of trading the news

In the next lesson we will see some techniques to trade the news in forex. Before continuing, you must take into account the advantages discussed in previous lessons about trading the news, but also the risks and disadvantages that I will present below and that you may experience frequently when important news is published.

II. Spread Increase

Some brokers can guarantee you the execution of your orders during the publication of important news but not the spread, others can guarantee the spread but not the execution and others may not guarantee you one thing or the other and let the market decide what they can offer you. You will very often see how the spread increases considerably (2, 3, 10 or even more pips ) moments before and after a news release. If you are going to be chasing small profits, 10 or 20 pips , this increased spread will also increase your chances of your trades ending up in losses.

III. Freeze on order execution

Some brokers do not allow the opening of new orders moments before the news release (some up to 15 or 30 minutes before) and may maintain this order freeze until moments after the news until the market stabilizes.

You will be able to see this fact in a much more marked way in those brokers that guarantee you fixed spreads since the natural spread in the market may have increased and if they offer you their fixed spread, the broker will lose money.

IV. Slippage

During high-impact Forex news releases the market can move really fast in a matter of seconds. If you try to place an order at a price in the middle of this high volatility, it is very likely that your order will end up being executed at a price very different from the one you wanted and it will be a real miracle that the difference between the execution price you wanted and the price at which your order was finally executed is in your favor.

V. false signals

The high, sometimes extreme, volatility that comes with big news can cause the trading price of a pair to move 20, 30 or more pips to either side of the chart. This can give you false signals as well as execute previously placed pending orders, sometimes it can be in your favor and in seconds turn against you.

All these problems can be very difficult to deal with even for very experienced traders. Now that the problems and advantages have been mentioned let’s go with a few strategies for trading the news, although basic, widely used and popular.

Trading strategies for the news: Straddle and Trade the Number

As we have seen in previous lessons, the publication of news can cause high volatility in forex and large movements in the price of a currency pair, a fact seen as a great opportunity by many and as a high-risk situation for the to walk away for many others.

Everyone can have their own strategy for trading the news, here we will expose two of the most popular and widely used trading techniques for trading the news: «Straddles the news» and «Trade the number». The fundamental, and important, difference between the two is that the Straddle strategy does not take into account the result of the news itself, while Trade the number waits for the result of the news to take action. Let’s take a closer look at both strategies.

Straddles The News: Positioning Both Sides Before The News

Straddle is an English transitive verb whose literal translation into Spanish is somewhat complicated but it means something like “astride, extend on both sides”. From the very meaning of the word we can deduce what the strategy consists of: placing pending orders on both sides of the current price moments before the publication of the news so that when the result of the news triggers the price towards one of the sides, our order in the right direction.

Straddles The News is a very easy strategy to set up and execute but it is also probably the riskiest news trading technique. To straddle, find out when an important news item is published, connect your platform moments before and place a pending order to go long a few pips above the current trading price and another a few pips below to go short. . If the outcome of the news creates enough volatility your orders will be automatically executed as well as your stop loss and take profit levels. The idea is that if the market moves up on the news your pending buy order is the one filled and you cancel your pending sell order. It sounds easy right? Well, it’s that easy, but remember the associated risks that can cause the two orders and their corresponding stop loss to be executed, ending the two operations in losses in the blink of an eye: widening of the spread, high volatility with sudden movements to both sides , slippage, etc

Trading the number: trade in the direction indicated by the result of the news

This news trading strategy seems to be preferred by many as it is less risky than the straddle. As its name suggests, the strategy consists of knowing the result of the news and entering the market in the direction indicated by said result.

The first thing to do with this technique is to know the importance of the news as well as its meaning and forecasts. The second thing is to wait to know the result of the news, value the deviation with the forecast and operate according to this deviation. If the result of the news is in accordance with what was expected, there will not be an exaggerated movement, if the result has deviated quite a bit from the expected data and it is a good data, it will be necessary to buy the currency of that country, if on the contrary the data has been bad and surprising (deviated from expectations) will have to sell the currency of that country.

Let’s take as an example that you are going to trade a monthly unemployment report and that currently the employment situation for the country in question is very important given its political-economic situation. The forecast is that performance will increase as it has done in previous months. The time has come for the publication of the number of unemployed in the country and surprise! unemployment has decreased and a few thousand jobs have been created. The market will react in favor of the currency of the country in question, if for example it is the United States, the EUR/USD pair will go down (favorable for the USD).

As you can see Trade the number is a strategy with less risk than the straddle but it requires a little more experience and training.

Sources & references
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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.

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