The Best Strategy For News Trading

19. News Trading Strategy 19.1 What Is News Trading News can be a recent economic or monetary event, meeting or decision such as interest rate of central banks, unemployment rate or economic growth that depends on its importance has some effects on worldwide currencies. For example, release of unemployment rate in UK will have an effect on GBP/USD. Important news may cause a sharp 50-200 pips move in a currency pair. The biggest part of this move happens in the very early 5-30 minutes after news release and the correspondent currency becomes very volatile (jumps up and down very quickly) in this time. Just because of this high volatility trading news can be challenging and troublesome.

You can find all the Forex news in Forex calendars. Below you see some of the best Forex calendar websites. http://www.forexfactory.com/calendar.php http://www.investopedia.com/forex/calendar/ http://www.fxstreet.com/fundamental/economic-calendar/ http://www.dukascopy.com/swiss/english/marketwatch/ calendars/eccalendar/ http://www.currencynewstrading.com/calendar/ In calendars we can see three columns: actual, forecast and previous. Forecast as its name shows, is a forecast about the figure of the economic factor that is to be released.

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And the actual, is the real figure which is released at the news time. If the actual figure is better (better is relative, for example a lower unemployment rate is better but lower economic growth is worse) than forecast, then the corresponding currency will goes up and if it is worse than forecast it will drop.

19.2 How to Do News Trading Trading news is a quite controversial case. If you search the web for the related articles you will face with hundreds of pros and cons about this subject, both of them have their reasons. Among them, the extremist opponents strictly warn and prevent you to trade news and the supporters urge you to do it. However, I have my own approach to this case and again have recruited math to solve this enigma.

I did a statistical research on Forex charts to figure out the behavior of the price (major pairs) during the news release.

Below is the summary of my findings: A. In 50% of the times (whatever the actual and forecast figures are), the relevant currency pair do not significantly react to the news (mostly low or medium impact and seldom high impact news) at all (except for low range hysteric moves during the first minutes) and the price takes its main course respecting the dynamics of the price (trends, patterns and price rejections).

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B. In 25% of the times, the relevant currency pair shows a very intense reaction to the news (always high impact news release) according to the actual and forecast figures, again, in the end obeys the price dynamics. This reaction can cause big profitable 50-200 pips moves.

C. In 25% of the times, the relevant currency pair shows a big reaction to the news (always high impact news release) according to the actual and forecast figures, contradicting the trends, patterns and price rejections. This reaction can also cause big moves (ranging 50-200 pips).

D. Average bad spike (I mean against your trade) depends on the importance of the news and vary on different currency pairs but in general it can be 15-50 pips.

E. If the news release occurs at a tight major support or resistance level, the bad spike will rarely go more than 10-15 pips away from higher highs or lower lows.

You may go to this address and check above statements on real charts: http://www.forexfactory.com/market.php According to these statistics and facts, I try to plan a solid framework to work around news trading.

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Figure 19.3.1 A news trade analysis

But, analyzing AUD/USD for the same news release, we find that all conditions of a successful news trade are met. A very tight resistance level and acceptable risk/reward ratio (1:2.2) qualify AUD/USD for this trade.

Figure 19.3.2 A news trade analysis

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