Earning dozen of pips in few minutes or even seconds ... Without doubt this is the reason that made you click on this heading. I will tell you immediately, there is no miracle strategy to trade the news. It's up to you to establish your own strategy based on your risk aversion. Trading news is very risky but can be very money-making ... News are just another way to make more money.
Which news to trade?
Almost every day there is a news or even a lot sometimes. No need to be worried if you missed one. Their announcements will occur at any time of the day depending on the country linked by the news. A news will not impact all currency pairs but only the pair concerned. If the announcement concerns a figure on the euro, then all pairs with EUR are concerned. The USD/CHF will not, for example.It’s up to you to list news you are interested in according to the currency pairs you want to trade. Each news does not have the same impact. You can see their importance and the dates of publication of news in our "News - Economic Calendar." More important is the news, stronger its impact will be on the market. These news involve various reports on all activities of a country. Thus there will be news about the unemployment rate, the trade balance, retail sales, sales of durable goods, inflation, GDP and many others.
Know it
If you trade news, there are some tips to know:
- When a number is published, it is the difference between forecast and what is published that causes strong movements on the market. If the forecasts are identical to published figures, the market will not react. However, if forecasts are better than the published figures, the market will drop. The reverse is also true. This is true in the short term. In the longer term, the figure itself is interpreted by investors later. There is no comparison with forecasts. For example, if the unemployment figures are bad in spite of they are better than forecast, the market will drop in the long term. The real economy has a real impact on a currency.
- Before each major announcement, you will notice that the market is flat. It said that the market is waiting. He waits for the announcement of the new to take a side. There is a rule. More a market is calm before a news, more the publication of the news will have a strong impact on the price.
- We buy the rumor and sell the news. All markets are in fact expectations market. Investors try to predict the future. It is for this reason that when the figures are in accordance with forecast, the market does not move. The news is already incorporated into prices.
Risks
Know how to trade a news is one thing but in practice, what are the risks?
- The slippage: The failure of your stop order to be executed as the price you asked. As you already know, once the limit of your stop order is reached, your order becomes a market order. During normal price fluctuations, there is no problem, you will be executed at the price requested. The problem with news is that they create movements of 50 pips or more in a few seconds. Your order is at the market once past your limit,so you can be executed at a upper price than requested. Consider an example. You expect bad news on the U.S. but you are not sure of you. The EUR/USD is priced at 1.4010. To take advantage of the increase in case the news would be bad as you planned, you decide to place a stop order at 1.4030. The new come out, the figure is very bad. The EUR/USD drop of 60 pips in a few seconds because everyone is buying Euro. You're watching your execution price and then suprise, it is at 1.4050! Scandal! Well, no! Your stop has been reached and has become a market order. But the market has up so quickly that you have not been executed immediately because of the large number of buyers. Few times later the market starts to decline and dropped back to 1.4035. Result of the trade: -15 pips in 10 seconds. And god, here I was lucky!!
- Frozen orders: the announcement of a news, some brokers will not allow you to place orders. In the stock market, it’s also the case with options and warrants. The market maker simply gets out of the book order. This is usually the case with brokers offering fixed spreads. Indeed, during an announcement, the spread is enormous. If the broker did not get out of the market, it would lose a lot of money because he has fixed spread(smaller). You will not be able to trade news. Scandal! well yes!
- Spreads: Among the brokers that do not guarantee fixed spreads, again you can shriek scandal! Indeed, during an annoucemnt, spreads may increase considerably. 15 pips of spread is already seen with some brokers!! Imagine that you placed your stop order before the announcement (the spread is at this time small), and when you are executed, the spread is at 15 pips. In addition, the risk of slippage ... The bottom of the well is next to you i can tell you!
- Volatility: Taking a stand just before an announcement is a right but it is very risky! If it goes in the wrong side(which is often the case), your losses can be very big and more especially if you used an important leverage. Here it’s not one hand you lose but both legs!! Go play to a casino, gamble red or black, it can be better!
Conclusion:
If this section scared you a bit, then my goal is reached. Trading news can be money-making but it can make you especially lose a lot of money. We should not play all the news. Personally I do not play too important news that can cause enormous variations of the price. The risk is too high. But, it’s up to you to find your way according to your personality. If you are a player, place two limit orders, one to play the rise and the other to play the fall and so you will take advantage of the movement whatever the side. For others, I advise you to take position after the announcement one side or another, according to figures published. If the figures are good, then go along to take advantage of uptrend left.
