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If you’ve ever come across traders who seem to profit off big market swings, you might be wondering what their secret is. It very well could be news trading.
What is trading the news in a forex context? Many consider news trading to be a subset of fundamental analysis. At its core, news trading is all about cultivating awareness of news and events and then analyzing these events to make trade predictions.
From elections to economic reports and even unforeseen circumstances such as acts of God – all these things create waves in the Forex market, and news traders know how to ride those waves to profitability.
What is News Trading?
Imagine if the U.S. Federal Reserve were to announce a surprise interest rate increase. This would likely cause the U.S. dollar to look more attractive to forex investors with a financial interest in how one currency compares to another. If the U.S. dollar’s value jumps compared to another chosen currency in ways you, as a forex, trader, have anticipated, then you stand to make a big profit!
News trading is about more than just central banks or interest rate hikes, though. An experienced news trader knows to keep an eye out on economic reports that include such things as employment information and data, GDP growth and global events such as political turmoil, natural disasters, even major trade deals.
It’s worth noting that news trading is a short-term strategy marked by frequent market moves and often, wide swings in relatively short periods of time.
News Trading vs. Technical Analysis
If you’re newer to forex trading, it’s a good idea to establish an understanding of various different trading strategies, as we explain in our blog post “4 Forex Trading Tips You’ll Want to Start Using”.
New trading is a trading strategy that relies on fundamental analysis of news and events. But news trading itself doesn’t make up the whole of fundamental analysis. There are also plenty of other components to consider, such as company analysis, industry analysis, and further economic analysis.
What’s more, there’s technical analysis to take into account as well, which relies on studying historical price charts and patterns and how they relate to given currency pairs. By using this analysis wisely, a forex trader can profit on correct predictions in a similar way that they might by correctly predicting news events and their ensuing outcomes.
In other words, experienced forex traders will often use a mix of different trading strategies, but it’s nevertheless important to understand news trading, because it can be a powerful addition in any forex trader’s strategy arsenal.
How to Trade the News
Now that you know some more background, if you’re looking to get started on implementing a news currency trading strategy, what should you do?
First, settle on a currency. As Investopedia notes, there are eight major currencies most forex traders focus on:
1. U.S. Dollar (USD)
2. Euro (EUR)
3. British Pound (GBP)
4. Japanese Yen (JPY)
5. Swiss Franc (CHF)
6. Canadian Dollar (CAD)
7. Australian Dollar (AUD)
8. New Zealand Dollar (NZD)
Next, we recommend the following:
- Know your news: Keep abreast of economic calendars for big announcements (such as interest rate changes, inflation, employment data). Don’t forget to stay updated on global events, too. Understand that it can take time to become experienced at filtering out what’s applicable news or “big news” and what’s just “noise”.
- Develop a strategy: Do you jump in right when the news hits, or wait for the dust to settle a bit first? Learning to combine analysis of thew news with technical analysis (charts and indicators) can help you time your trades wisely and result in more upside.
- Tools of the trade: A good trading platform with real-time news and charts is essential to any forex trader. Don’t forget to use reliable financial news sources, too – places like Bloomberg and Reuters, for instance.
Practice Forex Trading with FundedNext
If you’re newer to forex trading, it’s easy to become overwhelmed with the amount of information out there on trading strategies, let alone feel confident enough to execute on any of these strategies. The reality is that different trading models work better for some traders, and others work better for different traders, depending on skill and preference.
Want to explore different strategies and practice forex trading? That’s where a prop trading firm like FundedNext can help.
At FundedNext, we offer a variety of challenges to help you learn forex trading with far less risk than going it alone. Check them out now at fundednext.com!
