News trading – or trading based on the release of new data that is likely to have a direct impact on the relevant market – is a fairly common practice in many different financial markets and plays a key role in short-term commodities trading, including foreign currency trading (Forex). In most markets, the relevant news is based in one country and comes from one central authority, meaning that the entire market knows precisely when an announcement is to be made and knows precisely where to find it. However, Forex news trading is considerably more complex since it relies not only on news being released – in diverse languages at that – from around the world but also around the clock. Unlike most commodities markets that have set trading hours, the Forex market is open twenty-four hours a day, five days a week so news releases at awkward times from the other side of the globe and in a foreign language can play a major role in Forex trading.
Generally speaking, the most common types of news that has a direct short-term effect on the market is periodic statistical data released by governments and central banks. This data frequently includes things like industrial production or manufacturing data, financial data (like interest rate decisions, inflation reports, or trade balances) and domestic economic data (like unemployment figures or consumer confidence information). Further, many of the more complex news traders will also use smaller, more obscure “feeder” sources, like provincial reports and even information obtained from local and regional public news sources to help them anticipate the results of larger national level reports and news. Most news traders focus on news releases directly connected to the currency pairs that they trade – for example, someone trading USD/GBP might emphasize U.S. and British news releases and information – but news from relevant third parties can also play a role as well. With the current level of global economic interdependence, a report about a third country might end up presenting the savvy trader with a better idea about how a particular currency will move.
Like any sort of short-term trading strategy, most Forex news trading is specifically designed to help the trader make a few pips and then move on to the next trade. However, news traders – and especially ones that stay committed to particular currency pairs for a long time – are also able to recognize longer-term trends and identify particular indicators that they can use for longer term investment strategies as well as short-term trading. Many of the market’s most successful traders are news traders and if one stays focused on the same basic currency pairs after a while one is bound to become an expert on how the currencies behave against one another, giving the news trader a competitive advantage in that particular market niche.
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