Capital markets, in general, are unique from other markets for goods and services. While I do believe the Forex is driven by supply and demand for the respective currencies at play, often what really moves the markets is anticipation of future supply and demand rather than actual supply and demand. That realization comes to most traders at some point in their career. This concept leads to the biggest question in the Forex: where do these estimates of supply and demand come from?
Surely a comprehensive survey of every user of every currency is impossible. However, there are ways to aggregate and access some information in one place. This is the purpose of news and announcements. News comes from a variety of sources--both commercial and governmental. In the Forex, an emphasis is placed on the value of information or news from government sources. This is fine and is certainly a location on which I place a lot of my own attention, but commercial sources and general investor commentary can do a lot to improve your trading as well.
The purpose of this article is to provide some basic step-by-step methods you can employ today to take advantage offorex news in the market. I have some experiences that I will share to show how you can find some great trades and how you can identify the duds before they become real bombs in your portfolio. The examples I am using in this article are not the only possible trades available. There are a variety of events each month that can be used to time a good trade. It is useful to watch ongoing news stories that are currently dominating the headlines and minds of investors to identify trading opportunities. The significance of one piece of news over another will change over time. An easy gauge to tell what is important and what can be minimized is the news coverage itself. If one piece of information or speculation about that information is dominating the scene, then it is clearly something you need to be aware of.
As we proceed through this article, I will share some rules that I have used in the past to profit from news events. However, I think it is somewhat foolhardy to rely completely on a set of rules established in the past. Adjusting your price targets and stops to market volatility and your own risk tolerance is very important. Similarly, while I consider myself a swing trader--willing to hold a position for between 2-3 days and 2-3 weeks--there is a lot of room for good day- or shorter-term traders and long-term traders as well. I will periodically take some very short-term trades around a specific announcement, and I will share those circumstances with you in this article. Understanding the news is very important for every trader, especially those looking at the long-term play. In my book, Profiting with Forex, I spend a great deal of time illustrating the long-term effects of fundamental changes on the Forex.
Before we begin diving into specific strategies, it is important to accumulate our arsenal of trading weapons. Two of the strategies I will be discussing rely on the use of an outright long or short position. You could take this position in either the spot Forex market, which most of you are probably using, or in the exchange-listed currency futures market on the CME. The third strategy begins diving into the world of options. For those of you familiar with equity options, currency-futures and some spot Forex dealers offer similar instruments for trading. Recently exotic, single-payment and binary options have also become popular. I will refrain from going into too much detail here and instead just pick one type as an example. Check them out on your own, and see how they work for you.
Example #1
The first technique I have to share comes with a couple of tips. First, I have found that news that involves the U.S. dollar usually has the biggest impact on the market as a whole. I am sure most traders are already aware of this, but with very few exceptions they tend to be the most closely watched by the greatest number of participants. Each month there are some ï'hotï' news announcements, one of which is the unemployment report, which is released on the first Friday of each month. The trick with this, however, is that the largest moves are usually made when the numbers miss or beat expectations. But be careful. The correction usually happens very quickly. I use an easy technique to get me into the market before the move occurs with a generous stop and limit order on the other two sides of the trade.
Surely a comprehensive survey of every user of every currency is impossible. However, there are ways to aggregate and access some information in one place. This is the purpose of news and announcements. News comes from a variety of sources--both commercial and governmental. In the Forex, an emphasis is placed on the value of information or news from government sources. This is fine and is certainly a location on which I place a lot of my own attention, but commercial sources and general investor commentary can do a lot to improve your trading as well.
The purpose of this article is to provide some basic step-by-step methods you can employ today to take advantage offorex news in the market. I have some experiences that I will share to show how you can find some great trades and how you can identify the duds before they become real bombs in your portfolio. The examples I am using in this article are not the only possible trades available. There are a variety of events each month that can be used to time a good trade. It is useful to watch ongoing news stories that are currently dominating the headlines and minds of investors to identify trading opportunities. The significance of one piece of news over another will change over time. An easy gauge to tell what is important and what can be minimized is the news coverage itself. If one piece of information or speculation about that information is dominating the scene, then it is clearly something you need to be aware of.
As we proceed through this article, I will share some rules that I have used in the past to profit from news events. However, I think it is somewhat foolhardy to rely completely on a set of rules established in the past. Adjusting your price targets and stops to market volatility and your own risk tolerance is very important. Similarly, while I consider myself a swing trader--willing to hold a position for between 2-3 days and 2-3 weeks--there is a lot of room for good day- or shorter-term traders and long-term traders as well. I will periodically take some very short-term trades around a specific announcement, and I will share those circumstances with you in this article. Understanding the news is very important for every trader, especially those looking at the long-term play. In my book, Profiting with Forex, I spend a great deal of time illustrating the long-term effects of fundamental changes on the Forex.
Before we begin diving into specific strategies, it is important to accumulate our arsenal of trading weapons. Two of the strategies I will be discussing rely on the use of an outright long or short position. You could take this position in either the spot Forex market, which most of you are probably using, or in the exchange-listed currency futures market on the CME. The third strategy begins diving into the world of options. For those of you familiar with equity options, currency-futures and some spot Forex dealers offer similar instruments for trading. Recently exotic, single-payment and binary options have also become popular. I will refrain from going into too much detail here and instead just pick one type as an example. Check them out on your own, and see how they work for you.
Example #1
The first technique I have to share comes with a couple of tips. First, I have found that news that involves the U.S. dollar usually has the biggest impact on the market as a whole. I am sure most traders are already aware of this, but with very few exceptions they tend to be the most closely watched by the greatest number of participants. Each month there are some ï'hotï' news announcements, one of which is the unemployment report, which is released on the first Friday of each month. The trick with this, however, is that the largest moves are usually made when the numbers miss or beat expectations. But be careful. The correction usually happens very quickly. I use an easy technique to get me into the market before the move occurs with a generous stop and limit order on the other two sides of the trade.
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