You simply cannot bypass the influence news has on the forex market. If you do you are sure to disregard your technical analysis based system at one point but little will you know that your system is as innocent as you are as ignorant of the influence news has on the market.
Before you think of trading the forex market, you have to know what moves the market. The answer to that is simple. The news! No matter what Holy Grail of technical analysis you use if you are not aware of the basic global news that actually move the market you will be baffled frequently by movements you will think are bizarre.
Why trade the News
Important news makes the market move because traders will react on release of the news. You will be better prepared if you are on the right side of the move.
Cons of News trading
As with all methods of trading the forex market there must be a disadvantage.
-Because the markets are so volatile after the release of important news, most brokers will likely increase their spreads and this can hurt your trading.
-Slippage becomes probable during periods of important news releases. It occurs when due to the fast movement of the market when you fill an order you may be filled with a different price.
-Big market moves don’t generally move in a single direction. The market may usually dangle up and down before participants eventually decide on the best direction.
Profitable as it may be it simply is not easy. You need to have a good grasp of Economics and know how certain variables react when certain things happen. And this is simply not easy.
Which News is important
Trading the news is difficult not only because you need to have an understanding of economics but because there are so many news releases per day and if you were to act on most of them you definitely will get confused. Below we look at the trade-worthy news reports.
The US is the most important player in the market and you should follow for a start only news from the US
-US inflation and central bank news are so important and play a big role in the forex market.
Information such as wars, natural disasters move the market significantly but not as much as central bank information.
Follow major stock market motions too.
When trading the news your focus should be on the most liquid pairs.
The pairs to follow are: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD and AUD/USD.
As a conclusion take note of the following points:
When you have a directional bias, you are expecting price to move a certain direction, and you've got your orders in already. It is always good to understand the underlying reasons why the market moves in a certain direction when news is released. When you have a non-directional bias, it doesn’t matter to you where price is heading. You are ready to follow.
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